Madison Reed: Amy Errett

Amy Errett had a successful career in finance and venture capital before taking a leap into an entirely new business: hair color. When her wife complained about the indignities of coloring her hair at home, Amy realized the sector was ripe for a makeover. At age 56, she dove into the minutiae of dyes and developers, launching her own formula in 2013, and naming it after her daughter. Madison Reed’s early successes were marred by a management meltdown, when Amy had to break with three of her co-founders—an experience she describes as one of the most difficult of her life. Today Madison Reed is available in thousands of stores across the US, and runs nearly 100 of its own salons. This episode was produced by Sam Paulson with music composed by Ramtin Arablouei. It was edited by Neva Grant with research by Iman Maani. Our engineers were Patrick Murray and Kwesi Lee. You can follow HIBT on X https://twitter.com/HowIBuiltThis & Instagram https://www.instagram.com/howibuiltthis and sign up for Guy's free newsletter at guyraz.com http://guyraz.com/ or on Substack https://guyraz.substack.com/. See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

• 0:00Speaker 00

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• 5:21Speaker 01

  We had four co-founders when I started, and all three of them are gone from the company through some of the most painful experiences that I've ever had in my life. These were three people that I cared deeply about. Two were personal friends, and I thought I could will it to work. And it didn't. And it cost the-- I would say it cost the company a couple of years in retrospect. And I learned a lot. My Series A investor said, "Amy, four co-founders is too many." And I said, "No, it's not." And boy, was he right.

• 6:04Speaker 00

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

• 6:16Speaker 00

  I'm Guy Raz, and on the show today, how Amy Eret decided that hair color needed a makeover, and how she built Madison Reed into a national, multi-channel brand.

• 6:36Speaker 00

  The startup world is full of stories about young people who take huge risks. And when they fail, it can actually be pretty great, because when you're young, obviously, you can recover from a significant failure. You have time on your side, which is part of the reason why I have so much respect for founders who take those risks later in life. Because if you're older, like 45 or 50, the stakes are higher. If you lose everything at that age, you might not have time to get it back. But being older can also have huge advantages. You have experience, perspective, probably a bigger network, and you have to be really deliberate about the kinds of risks you take, which is exactly how Amy Eret had to operate.

• 7:21Speaker 00

  Amy was 56 when she launched Madison Reed. It's a hair color brand that you can find at Walmart, Ulta, Target, and thousands of other locations across the country. The idea for Madison Reed came in part from Amy's wife, who was having a hard time finding a decent at-home hair color product. Amy saw an opportunity, the same kind of opportunity that led to companies like Harry's Razors and Dollar Shave Club, take an old-school product with a frustrating experience and offer a better option. Now, at the time, Amy didn't know anything about hair color. She did know that about half of American women who dye their hair do it at home. And at first, that's exactly who Madison Reed was built for.

• 8:06Speaker 00

  Now, before she launched the brand, Amy had a completely different career. She was in banking and finance, consulting, even venture capital. But eventually, she realized she didn't want to be the one listening to pitches. She wanted to be the one making them. And as you will hear, Amy dealt with a pretty big setback before Madison Reed. She was fired as the CEO of a company she ran for several years. But she took the lessons she learned from that experience and tried to apply them to her new role as a startup founder, including a painful decision to separate from three of her co-founders. It's a story I've rarely heard a founder speak so candidly about, and it's worth hearing.

• 8:47Speaker 00

  Anyway, before all of that, Amy Errett grew up in the 60s and 70s in Philadelphia and Long Island. After college, she did an MBA and then worked in banking and finance before starting her own consulting firm called Spectrum, which specialized in mergers and acquisitions. And so, the idea was, we will help these deals go through, and you get a cut of the percentage of the sale.

• 9:11Speaker 01

  Exactly. And it turned very quickly as well that we would do the transaction, and then the buyer would ask us to come in to consult about how to integrate that business into their business, which then turned into consulting fees that kept us going.

• 9:27Speaker 00

  And did you run a pretty lean operation? Or did you guys start to hire, I mean, hire a bunch of people?

• 9:34Speaker 01

  We started to hire a bunch of people. I think at the apex, we probably got up to about 40 people in the firm.

• 9:42Speaker 00

  Wow. So you were, guys were doing really well?

• 9:46Speaker 01

  We were doing well. We were a profitable company from the first six months and never became unprofitable, never needed to raise any more money. So it was a very different thing than raising venture money, which, you know.

• 10:00Speaker 00

  We'll get to.

• 10:01Speaker 01

  Yeah, we'll get to it.

• 10:02Speaker 00

  Yeah, I guess for business and personal reasons, you eventually decided to move Spectrum from where you'd founded it, which is New York City, to the Bay Area. How did you find San Francisco in the 90s?

• 10:17Speaker 01

  It was exciting. And remember that I had spent my whole career in New York City on Park Avenue or down in Wall Street. And it was completely different. The whole fact that people didn't put a business suit on to go to work was like a mind blower. I mean, we had an office and I hired an assistant here. And Halloween happened and the assistant came in their costume, which was very customary in a place like San Francisco. But in New York, you would never go to work in your costume. And so, things like that were just foreign to me.

• 10:50Speaker 00

  And what about socially? Did you start to feel like you could breathe?

• 10:55Speaker 01

  Definitely. It was much more gay friendly. I had told my family before I moved and I had a lot of acceptance. So, I wasn't somebody that was struggling with their family rejecting them, which, you know, I have a lot of friends that's happened to. And it's, for me, it was shocking that it was happening, but it was definitely happening. But yeah, I, I met a social crowd. I had a lot of friends and I, I had told my business partner and I was out at work.

• 11:29Speaker 00

  And, and also, like, at that time, the early nine, even in the early 90s, there probably just weren't as many resources available for people who, who, you know, were, were trying to figure out their identity, right? Like, there just weren't as many books and obviously, the internet wasn't what it is. I mean, there just weren't as many tools to connect with people.

• 11:52Speaker 01

  Most people did that through their friend circles. You had a close knit group of people and that's who you sort of did everything with. And you met other people in their circles of people. So, really, communities were very tight, much more than today, where, for instance, my wife and I have an equal number of gay friends and straight friends. Like, it just doesn't, in those days, you, if you had straight friends, that was outside of your gay circle.

• 12:20Speaker 00

  You mentioned your wife Claire, you met her-

• 12:22Speaker 01

  I did.

• 12:22Speaker 00

  -in San Francisco. And what is she, what was she doing at the time?

• 12:27Speaker 01

  She was a massage therapist. So, very different. And we met each other through a place that I had gotten very involved in called Glide Church. And-

• 12:40Speaker 00

  This is a well-known-

• 12:41Speaker 01

  Yes.

• 12:42Speaker 00

  Methodist church in San Francisco.

• 12:43Speaker 01

  Yeah. Yes, Methodist church and has largest set of social service programs in the city. A food program, housing program, recovery program. So I was very involved and had gotten on the board and I was actually chairing the board and Claire sang in the gospel choir.

• 13:02Speaker 00

  Right. And how did you get involved in that, in that church?

• 13:04Speaker 01

  I, a friend took me because my stepmother was dying of cancer. And I was going through a hard personal time. I was close to her and so I watched the dying process and was a caretaker for her back east. I used to go back and forth. They lived in Florida at the time. So I was in a grieving stage. And a friend told me about the spiritual pieces of Glide and so I started going because of that.

• 13:38Speaker 00

  Yeah. And did you grow up going to church as a kid?

• 13:42Speaker 01

  No, I grew up Jewish. So this was-

• 13:44Speaker 00

  Really?

• 13:45Speaker 01

  Yeah. My mother, who just unfortunately passed away at the end of last year, very hard moment, had this famous saying that I've talked about all the time. "I was okay when you came out as a lesbian, but now that you're chairing a Methodist church, you're killing me." So that was her comment about Judaism. But I didn't grow up religious. I grew up more with traditions, I would say. To this day, it wasn't about reading the Bible. It was about helping people and the goodness of paying it forward. That's where my spirituality lies today.

• 14:26Speaker 00

  All right, so back to the timeline. I guess around 1996, this is about six years after you've launched the consulting firm, after you launched Spectrum, you get acquired. And from what I gather, the terms are pretty good. Like, and I have to imagine, Amy, I mean, this is, I mean, for somebody who grew up with not a lot of money, I have to imagine that this is really a life-changing transaction for you.

• 14:51Speaker 01

  Yes. A absolutely life-changing transaction for me. But I was three years of can I get more money? Because these earn-outs are about you get a payment and then you spend the rest of the time chasing the remaining payments. And so I did that. And I was really focused on the bottom line of that.

• 15:14Speaker 00

  I mean, at this point, let's, let's, let's be frank. You probably didn't need to work. You probably could have stopped working, which is not interesting for most people.

• 15:22Speaker 01

  I don't think that's true.

• 15:24Speaker 00

  No, okay.

• 15:25Speaker 01

  Yeah, I don't, I made a good, I made a good amount of money, but I didn't make enough money to live the lifestyle that I wanted. So I was still chasing more.

• 15:36Speaker 00

  Yeah.

• 15:37Speaker 01

  Yeah.

• 15:40Speaker 00

  You get a job in a completely different industry in, in, in travel. You got, you got recruited, I guess, to be, to become the CEO of a company called Olivia. This is a company that's still around. It is a travel company that at the time, I think, was focused primarily on gay women. Today, it's, it says, I will look at the website, lesbian and LGBTQ plus women.

• 16:00Speaker 01

  Yeah, we actually, they were very large vacation experiences. So we would rent Holland America ships, cruise ships, and reinvent the entire experience, the entertainment, the activities, the excursions, to tailor it to what gay women would want. So it was a premium. It was a great experience. And, you know, we had people like Melissa Etheridge, or the Indigo Girls, or people that were iconic in the gay women's community.

• 16:34Speaker 00

  All right, you're there, you would, you'd end up being there for five years, and the... The, um, let's see, the, let's say the ending was not what you had imagined. You were, you were actually like, oh, you were fired.

• 16:48Speaker 01

  I was fired in a hotel lobby on a Monday morning, completely blindsided.

• 16:52Speaker 00

  Completely blindsided. There for five years, you grow in the business, you think everything's going well and...

• 16:58Speaker 01

  The founder had a health issue and so I hadn't seen her in a really long time, but was reporting to her in the form of emails or sort of updates. So I thought we were just having breakfast. We weren't having breakfast, by the way.

• 17:15Speaker 00

  What did she, what, I mean, what, did she give you a reason? Did she say, hey, I'm not happy with her? What's, like, what was it?

• 17:22Speaker 01

  Well, I walked into the lobby and she was there, sitting on a couch. And I went to give her a hug and she sort of moved back and I thought, well, that's strange. And then she handed me an envelope and said, we're taking the company in a completely different direction. You're no longer the CEO. And I was completely startled.

• 17:43Speaker 00

  What was in the envelope?

• 17:45Speaker 01

  A lawyer's, um, a letter describing how I was being, uh, let go for cause. And cause was very nebulous. And so I was really blindsided and, um, yeah. It was, um, it was one of the hardest things in my life and it was one, in retrospect, the best thing that ever happened.

• 18:11Speaker 00

  I mean, it was a, it must have been particularly hard because it was a public story and it was, you know, this kind of juicy story, this lesbian-focused travel agency. And there's this kind of internal rift and it was covered by The Advocate and other publications. So it was, it was out there. People, people could read about this because you eventually decided to sue and then they countersued and now it's a bigger story beyond just a, uh, you know, an employment dispute.

• 18:43Speaker 01

  Exactly. First and last time I've ever been in a lawsuit.

• 18:47Speaker 00

  And you guys, they basically settled for an undisclosed amount?

• 18:51Speaker 01

  Yes.

• 18:51Speaker 00

  And that was it? You were, you were out of the picture. Tell me, you said it was the best, it was the hardest, but the best thing, paraphrasing what you said, to happen to me. Tell me why getting fired was, was in some ways the best thing that had happened to you.

• 19:10Speaker 01

  I started to understand what motivates me and I had a, the Madison Reed was a little kid, three years old at the time.

• 19:17Speaker 00

  Your child, your human child named Madison Reed.

• 19:21Speaker 01

  My human child named Madison Reed.

• 19:22Speaker 00

  She had been born in 2003, I think, at the time.

• 19:24Speaker 01

  Correct.

• 19:25Speaker 00

  Yep.

• 19:26Speaker 01

  So I felt financial pressure, but I also, as you said, felt a lot of shame and reputation, you know, damage. And I started to go down the journey. I got a therapist and I think it was my first opportunity to understand that things don't happen to us. We have 100% responsibility for what does happen. And I was really unhappy in the job. And in fact, my wife had been telling me for about a year, I don't think this is a great job for you.

• 20:08Speaker 01

  You're frustrated, the business, you know, you have bigger things you could do. And so I don't understand why you're being loyal and staying there. And I just blew that off and thought I was, you know, I had made a commitment and so I was going to stay and try to do the best I could. And I think that's just an important lesson in life, that sometimes shit happens to you. And the key for my life has been a certain amount of resilience and persistence. And so I knew what was true about me.

• 20:45Speaker 01

  And so I just decided that I needed to release myself from that shame and just put my head down and follow my heart, important word, heart, not head. I tend to go to my head a lot, to the analytics rather than the feelings. And I made a conscious decision, I wasn't going to go take a job again that didn't satisfy me.

• 21:12Speaker 00

  It sounds like that was a, quite a transformational shift for you mentally. Like it sounds like, if I'm reading between the lines, you really were not somebody who kind of confronted your emotions. You were focused on success, you were hard charging, you were, you know, but now... You are forcing yourself to kind of peel back the onion layers.

• 21:38Speaker 01

  Just, I'll go back to not being able to be out. Right? There is some analogy here with absorbing a certain amount of things that you don't want to be true that are true. And when you're not out, you're living in a sort of numb state anyway. And so I think I was used to living in a numbed state. I wasn't being in my life at work. I was doing. And why I say it's the best thing is that I got really clear about what motivates me and what's important to me.

• 22:18Speaker 00

  All right. So you're sort of get through this, you're going through this, this kind of mourning process of being fired and losing a job and also a lawsuit. But you get, you do find, you get back on your feet. You find a job in, in venture, in back, sort of kind of back to the world of finance again. And this is, this is a venture firm called Maverick, which is, which was founded by Howard Schultz. It was his venture capital firm.

• 22:46Speaker 01

  Correct.

• 22:47Speaker 00

  What are, what are some of the things that you, because I'm assuming you had some face time with Howard Schultz, who's been on this show before. What are some things that you, you learned from him?

• 22:56Speaker 01

  I learned that this thing inside of me, which is mission based and values based, was an important factor in whatever I did next. And so he validated that that could be true and be, have success through that. And I had the good fortune of walking into stores with him and seeing that he started to get on the line when there was a line taking orders. Right? That he was just part of Starbucks regardless of him, whatever role that he was in. I also learned that he saw things before other people saw things. He had a gift about spotting a trend. I will never forget, it was the fall of 2007 and we had an investment meeting in Seattle

• 23:40Speaker 01

  and he walked in and he said, we need to slow down our investments. Now you remember that bank collapses happened in the fall of 2008?

• 23:47Speaker 00

  Yes.

• 23:48Speaker 01

  But this was 2007, a year before that.

• 23:51Speaker 00

  Wow.

• 23:51Speaker 01

  And he was seeing a trend about the purchasing patterns at Starbucks. He was starting to see the consumer's pain or the consumer's, you know, the afternoon drink, so to speak, was was something that I think they were starting to experience that slowdown. So validating one's gut is an important part of what I saw in Howard and excellent brand builder as well.

• 24:22Speaker 00

  I have to imagine that you, as somebody who really is not built to work for other people, here you are working for other people and obviously have immense respect for Howard Schultz, but you're seeing all these like founders come in, energetic, they're psyched about their business ideas, you're vetting them, you're, I have to imagine you're starting to get like, like, like FOMO here, like, I'm, I, I need to be on the other side of the ta, the other side of the table.

• 24:53Speaker 01

  Absolutely. I remember my experience being on the, in boards where I'd be watching the CEO wishing I was that person while all the other investors got in their Teslas, as I say, and drove away, probably completely relieved that the board meeting was over. And I was sitting there thinking, what would I do if I was in their position? And that became more and more and more of what I was feeling.

• 25:17Speaker 00

  And, and tell me where that comes from because, look, at this point, you're, you're, you're in VC, you've got, now you've built up a considerable net worth, like you've got a nice life, and you probably could spend a bit more time with your daughter. Like, I don't know, but what was it about seeing these startup founders who were just grinding, working 100 hour weeks, that made you think, I want to do that?

• 25:42Speaker 01

  I never felt like I had the big outcome that I wanted. I had a really nice outcome, but I didn't have a big outcome.

• 25:51Speaker 00

  You're, you're, you're, you know, seeing other people who have like $100 million plus exits and you're thinking, you know, I, I could probably do that.

• 26:02Speaker 01

  Yeah. And this is one of the things that I'm not sure when I say that guy that I feel proud of that, but it's it's a vulnerable thing to say, which is that I did not think that I had the outcome that other people that I was hanging out around with, you know, I am in something called YPO and my counterparts, you know, are the, you know, the top of whatever mountain there is in Silicon Valley. And I'm thinking, I'm smart. I need to do that. So I think it was ego driven as much as it was. And I think I used the excuse, which

• 26:45Speaker 01

  I've done all of my life as a working class kid, that I needed more money. I think I used that excuse because when is enough ever enough of anything in life?

• 26:58Speaker 00

  I really appreciate that vulnerability because I think what you just said is something many people think, but don't say. And, and we do, especially when you're in a status conscious environment, you know, when you're in the San Franciscos or the New Yorks or Los Angeleses of the world. I mean, that story can be told again and again and again in many different industries and categories. And yeah, I mean, I, I, I hear you.

• 27:25Speaker 01

  When you're a working class kid and the first one to go to college and you go to Wharton and you work at a blue chip bank and you just keep trying to prove that you can be successful. This is a game I can play my whole life. I can decide that no matter what happens at Madison Reed, it's not big enough because there will always be an AI company that's bigger. There'll always be a SaaS platform that's bigger. And I have a hard time seeing myself as successful. I don't think of myself as a successful person.

• 28:02Speaker 00

  I mean, if the story ended with your time at Mavron, you would be a successful person by any definition of that word. But we haven't even gotten to the thing that we're about to get into, which is the marquee part of this story. And so you are, back to the timeline, you are seeing all this happen and you start to think to yourself, I gotta start something.

• 28:28Speaker 01

  I gotta get back in the game.

• 28:29Speaker 00

  You gotta get back in the game. And you land on this idea to do hair color. And we're gonna get to that in a moment, but what it was gonna be. But how did you, tell me what you started? Because I imagine in your mind, you're like, I'm gonna start something. What, but you probably didn't land on the cosmetics or the hair care industry or whatever it was gonna be right away, did you?

• 28:56Speaker 01

  No, not at all. And I would say that where I landed initially, a little bit of a twist to what you said, is that I wanna be an operator again.

• 29:07Speaker 00

  Uh huh.

• 29:07Speaker 01

  Right, like that. And that's the way I was thinking, like, oh, like, do I wanna be an investor? Like, I was bored. You do a deal a year. You kiss a lot of frogs. It isn't results oriented for 10 years or eight years, right? So it's just a different lifestyle. And people that love it are great at it. And I found a way to be good at it, but I wasn't great at it because it isn't my passion point. It didn't make me spring out of bed every morning saying, I'm here, I'm ready. So the operator part was an itch. And we saw an investment at Mavron called Dollar Shave Club.

• 29:52Speaker 00

  Yes.

• 29:52Speaker 01

  And we passed.

• 29:55Speaker 00

  I know the story well. He was on our show.

• 29:56Speaker 01

  Yep.

• 29:57Speaker 00

  Michael Dubin.

• 29:57Speaker 01

  Michael is now my independent board member at Madison Reed.

• 30:01Speaker 00

  All right. So you had passed on that.

• 30:03Speaker 01

  Yeah.

• 30:03Speaker 00

  And then I think they were eventually acquired by Unilever.

• 30:06Speaker 01

  Correct.

• 30:06Speaker 00

  I think.

• 30:06Speaker 01

  They were eventually had a very good outcome.

• 30:09Speaker 00

  Yeah.

• 30:09Speaker 01

  And I was intrigued by the concept of disrupting consumer products by the internet and bypassing someone's shelf. And that's exactly what Dollar Shave Club did.

• 30:24Speaker 00

  Yeah. So how did you land on hair color?

• 30:28Speaker 01

  I had an analyst who worked for me as a summer intern from GSB. And she did a scan of analogous products with repetitive use in the women's beauty category or women's category. And hair color was the number one thing that came up. And I kept saying, this can't be true. These numbers just seem very large. And that's what came up. And then I started to do a bunch of research about online solutions for buying hair color. There must be something that I'm missing. And I wasn't missing it.

• 31:06Speaker 00

  So I think at this time, it was like $10 billion. It was a report that showed $10 billion was spent on hair colors globally. Super fast growing category. And like in the US alone, I'm just reading from my research at that time, 90 million women colored their hair. So.

• 31:27Speaker 01

  Every six weeks.

• 31:29Speaker 00

  Every six weeks. So it's a huge opportunity.

• 31:31Speaker 01

  Yes.

• 31:32Speaker 00

  All right. So 2013.

• 31:34Speaker 01

  Yeah.

• 31:35Speaker 00

  You is the year that you founded Madison Reed, named after your daughter. But what did you start to do? I mean, I'm assuming you start to buy some hair dyes and just test them out and find a pain point or something you could improve on.

• 31:50Speaker 01

  Yeah. So I'm a believer of synchronicity in life. And so while I can't make this story up, while I'm thinking about this, my wife, who turned gray at 25, who spent every 10 days sitting in a high end stylist chair because she doesn't want to be gray, was saying a lot of things about what do you think is in hair color? Like, I'm doing it this often. It doesn't feel that good. Like, it smells, it burns, it's kind of crazy. I'm in Whole Foods doing a Saturday morning shop.

• 32:23Speaker 01

  And she texts me and says, do you mind buying me a box of hair color? And I text back, at Whole Foods? She says, yes. I said, well, where, where is it? And so you go, I go over to the beauty section and, you know, have to, uh, there are six shades. I say, this is not high quality. Like, why are you going to do it at home? She said, well, at Whole Foods, it must have better ingredients. And so I buy a box with dust all over it, meaning it's been sitting there a long time, of the darkest black hair color that I can find. And the next stop on the Saturday morning errands was Walgreens. And I was picking up prescriptions and happened to walk down the hair color aisle.

• 33:07Speaker 01

  And turned, and if you've ever looked at it, it is crazy. There is no, there's no product differentiation. It's all $10. It's just an inferior consumer experience. And I bought 30 boxes randomly. Just put them in my basket and went home. And now Claire and Madison are like, what are you doing? And I'm taking them apart, looking at the consumer experience and seeing like, this is torturing a woman, smelling the developer torturing a woman. And the irony of it is she's supposed to feel beautiful at the end. And so, um, that was part of the mix of all this research that I started to do,

• 33:52Speaker 01

  talking to a lot of friends, how often do you get your hair colored? Do you care what's in the ingredients? And just, I spent about six months digging deep into just, is this a good idea? Could it work? Why hasn't somebody had a $30 prestige box? What are the limitations of that? And then, uh, found out, uh, the access you get when you're a VC is that I, uh, ended up getting, uh, what was supposed to be 30 minutes on the phone, uh, with an executive at L'Oreal.

• 34:26Speaker 01

  And just started to ask a bunch of questions, not under the guise of me starting it, but like, I want to find out about the industry and what goes on. And he started asking me questions. Like, are you gonna start something? Like, are you gonna, like, why are you asking this? And then I finally said, I'm contemplating this. And he said, Well, this is something that somebody needs to disrupt because there's no prestige box that goes to somebody. And if you do it, I'll invest.

• 34:53Speaker 00

  Wow, this is a L'Oréal executive.

• 34:55Speaker 01

  Yeah. And he, he, he left like, two months later. So I didn't know that he was leaving. And he was like, this is a really good idea. It's hard, but it's a really good idea.

• 35:07Speaker 00

  Now, I just want to put this in the context because, and this is really, I think, my favorite part of the story in some ways, which is, you're 55, maybe 56, and you decide to do a startup at that age, which I think is awesome. Because you really, I mean, you're at a point in your life where you could really kind of throttle back. And then, but you're, you're hitting the gas.

• 35:31Speaker 01

  Yes. I never doubted, did I have the energy? Did I have the, you know, brain power? Did I have the persistence? It was like, everything I've done up to this point, I felt like positioned me uniquely to be successful at this business. I'm a better CEO because I was an investor. And because I got fired. And because I faced into adversity. And boy, do you face into adversity every single day in these jobs. So what dawned on me was like, oh, I've waited all my life for this. I have waited all my life for this one.

• 36:12Speaker 00

  When we come back in just a moment, Amy launches Madison Reed with a Groupon deal, which does not go according to plan. Stay with us. I'm Guy Raz, and you're listening to How I Built This.

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• 40:07Speaker 00

  Hey, welcome back to How I Built This. I'm Guy Raz. So it's 2013, and Amy is trying to learn all she can about the business of hair color. And one of her best contacts in the industry is this guy she knows who happens to be an executive at L'Oréal.

• 40:24Speaker 01

  I emailed him and I said, hey, this is a crazy question. Do you know scientists? And he said, I know these, these people who have a consultant company that help people develop hair color. And you know, the private label industry is all in Italy. And so

• 40:43Speaker 01

  I went to Italy with these scientists, these hair color expert stylists.

• 40:49Speaker 00

  That you hired as consultants?

• 40:51Speaker 01

  Hired as consultants. And they introduced us to 13 hair color manufacturers.

• 40:58Speaker 00

  And what were you, what were you looking for before we talked about the meetings? What were you, you wanted to just find somebody who was willing to make a dye for you?

• 41:08Speaker 01

  Yeah, I wanted to figure out whether you could do it without harsh chemicals. Like, was it really feasible? There must be a reason that people aren't doing it. Right? I kept thinking, I'm missing something, I'm missing something. And the first 10 contract manufacturers I met with were all guys. And they, they literally laughed at me.

• 41:30Speaker 00

  They said, you have to use.

• 41:32Speaker 01

  Ammonia.

• 41:33Speaker 00

  Ammonia.

• 41:33Speaker 01

  PPD, resorcinol, sulfates. This is all the things that stabilize hair color so it works. And you're going to try to sell it on the internet? So they were like, I, I don't understand. And then lucky number 11, I spent five hours with them. And I was meeting with the CEO, he's since become a very close friend. And he's listening to this idea and he's like, yeah, you can take the chemicals out, but nobody wants to do that. Like, it's more expensive. And you need to spend more time in the lab and you need to really do a lot more testing and stabilization.

• 42:15Speaker 01

  And then he paused and he said, and you're a venture capitalist and so are you going to raise money for this? And I said, yes. And then he said, we laugh about it today, he says, well, you have to pay me upfront 100% for the first run and all in euro.

• 42:31Speaker 00

  Wow. And how much was that going to cost?

• 42:35Speaker 01

  Uh, I think altogether, it ended up being like maybe 160,000 of US dollars. Cause remember, the first run was a limited, you know, minimum order quantity. And when we launched, we only had 19 shades.

• 42:49Speaker 00

  You wanted 19 shades?

• 42:51Speaker 01

  They only could make 19 shades. I wanted as many shades as possible.

• 42:56Speaker 00

  That, but that to me sounds like for a first run, I'm thinking 19 shades, like. I'm thinking about ice cream. Like if you're starting an ice cream business, you just start with vanilla, chocolate and strawberry because all of the data shows that that accounts for most of what people order. And then you get into the chocolate chip cookie dough and the honeycomb brittle and whatever you want. And I'm thinking it's gotta be the same in hair dye, right? Like

• 43:18Speaker 01

  No way.

• 43:18Speaker 00

  They're probably only, no, it's not?

• 43:20Speaker 01

  No, I mean, look at every person has a different hair color. So the nuances of your hair is very specific to who you are. So there's, you know, 15 today, different brunettes, you know, and 20 different shades of blonde, right? And eight different shades of red. So we had to have a full enough spectrum of color that people could take us seriously in order. And so we started out with 19.

• 43:51Speaker 00

  And 19, this is going from what to what? Like blonde to black?

• 43:57Speaker 01

  Dark black, yeah.

• 43:58Speaker 00

  Okay.

• 43:58Speaker 01

  We have close to 100 today.

• 44:00Speaker 00

  I mean, I, it sounds like a lot to me, but I don't know this industry. The last time I dyed my hair was when I was in junior high and I was a punk rocker.

• 44:07Speaker 01

  What color?

• 44:07Speaker 00

  I just sprayed, sprayed it green. I was a punk rocker. Yeah, it doesn't count. But I mean, how long between that visit and the time that they actually had a formulation ready? Like, did they have to do a lot of research and a lot of work on it?

• 44:21Speaker 01

  And we had to spend a lot of time there because one of the things you do is when you make a color, it has to sit in testing, sort of quarantine for three months for stability.

• 44:33Speaker 00

  To make sure that it's gonna be shelf stable?

• 44:35Speaker 01

  Exactly.

• 44:36Speaker 00

  So you're just waiting for three months?

• 44:37Speaker 01

  Yeah. And then we're getting models. So we recruited models in Italy that come into their salon and then they color their hair and then we see what it looks like, pre and post. And then you start doing things like looking at it in sunlight, looking at it under UV, looking at, to make sure that it's actually the representation of what the consumer thought they were gonna get.

• 45:04Speaker 00

  What were you willing to spend before you went out seeking seed money? Like, was there a number in your head?

• 45:10Speaker 01

  About $200,000.

• 45:11Speaker 00

  You said, I will spend 200 and then if it doesn't work, I just, I'll eat it and move on.

• 45:17Speaker 01

  Yes.

• 45:18Speaker 00

  But clearly, that didn't happen. I mean, so, so as they're developing this product in your, and you're building a business model, how are you going to sell this? Were you gonna, it was gonna be a wholesale model? Were you gonna go to cosmetics brands and Walgreens and Walmart?

• 45:33Speaker 01

  No.

• 45:33Speaker 00

  Was it gonna?

• 45:34Speaker 01

  I was gonna do what Dollar Shave Club did, which is direct to consumer online. Yes.

• 45:40Speaker 00

  Because that is more profitable if it can work.

• 45:42Speaker 01

  Absolutely. More profitable, higher gross margins. And the one little thing that I realized was color matching. The person coming into our site was going to be the most important thing. When you walk into a stylist, they are looking at what your hair looks like at that moment.

• 46:00Speaker 00

  Yeah.

• 46:01Speaker 01

  And they're deciding what your hair could look like if they put various colors on it. That's what they get trained to do. There is science to this, not just art. And so I was thinking, well, geez, maybe we could do a quiz. And it had 18 questions that you were answering, including what color is your hair now? How much gray do you have when the gray grows out? What's the texture of your hair? And then what is your desired result? And we started to see very early on actually measuring customer satisfaction and net promoter score, whether or not this algorithm, because that's what we built, machine learned algorithm, worked.

• 46:43Speaker 01

  And that was the moment that we understood we had something here because the retention from the beginning and the color predicting from the beginning was very accurate.

• 46:54Speaker 00

  All right. So you were gonna sell this.

• 46:56Speaker 01

  Yes.

• 46:56Speaker 00

  Direct to consumer, and you had a hunch that there was an opportunity here. So here's a question. One of the, was one of the ways you thought about positioning it? In relation to competitors or potential competitors was we are safer or we don't have harsh chemicals or did you want to avoid that because that's also can be like a minefield?

• 47:19Speaker 01

  Yes and yes. We marketed and still market as ingredients you could feel good about and we talk about an eight free formula. So we're very, we're factual. We're not aspirationally, we don't use the word clean because that's a word-

• 47:38Speaker 00

  It's a meaningless word.

• 47:39Speaker 01

  It's a meaningless word, but lots of people use it. So we knew that if we got early adapters, maybe people that had been sick and they cared more about what they were putting in and on their body, that we had an opportunity. And so the, the marketing in the beginning was about better for you.

• 47:59Speaker 00

  And, and looking for like influencer types initially?

• 48:02Speaker 01

  Looking for influencers, but also we saw an opening with the age group that we were actually targeting, which was women that are starting to go gray.

• 48:16Speaker 00

  So like late 30s?

• 48:18Speaker 01

  Yeah, 38 to be exact, 38 and older. That's when acceleration of gray hair starts showing up. And our business model makes sense is based on the repetitive usage. So the more someone colors their hair, the more money they're worth to us. And so it was very important to get that market. 50% of women in the US color at home. So that is a bigger market than people thought. And that's who we were focused on. The at-home user that wanted a prestige product with better ingredients who had gray hair.

• 48:53Speaker 00

  So, all right. So it's 2013, you're working on the formulation, you find this Italian manufacturer and you decide to raise or you need to raise money because you're, you can't, you don't have the funding to do it yourself. And in April, I believe April of that year, 2013, you raise $4 million in a series A round with participation from Mavron and- Where you'd worked and you weren't going to launch until, remind me, when were you actually

• 49:23Speaker 01

  Fifteen months later, July of 2014.

• 49:26Speaker 00

  And so, and I believe that even before you launched, you did a series B round.

• 49:31Speaker 01

  That is correct.

• 49:32Speaker 00

  So was the idea here to go in big, to really go in hard in case some of the established players catch on and try to compete was the idea, we're going to go in well-funded and we are going to go out of the gates just like guns blazing?

• 49:49Speaker 01

  Yes, and the idea was since we knew that we wanted it to be a subscription-based business, that building the core of the subscriptions would scale the business faster. So you have to, you need a splash to get above the sort of noise for these women and figure out a way to stop them from using what they're using now and have them come to you. So I, my, having been a VC, I knew that it was going to cost a lot to acquire customers initially.

• 50:25Speaker 00

  And the cost was going to be through advertising presumably?

• 50:28Speaker 01

  Correct. Yep.

• 50:30Speaker 00

  All right, so in 2014, July 2014, you were ready to launch, you've got a website ready to go. What was the launch plan? How were you going to get on people's radars?

• 50:42Speaker 01

  So we had hired a PR agency that was pretty well-known in beauty and we had developed a launch plan of getting a very famous stylist to tell people that this was efficacious, that this was salon-quality hair color that they could trust and use at home. And we had a big, what would now be called an influencer event in their salon in New York City. And lots of press came. Lots of people let us do their hair, believe it or not. And it was very, very successful. And so now, all of a sudden, all of these blogs, all of these magazines, all the online magazines and content are saying, this hair color is amazing.

• 51:27Speaker 01

  And you can buy it online and it's better for you. And so initially, the first bang, if you will, was really PR and influencer driven.

• 51:37Speaker 00

  And you do, I think, a deal early with Groupon.

• 51:41Speaker 01

  Yes.

• 51:41Speaker 00

  Which we've also told a story on this show, it's an amazing story.

• 51:45Speaker 01

  Yes.

• 51:46Speaker 00

  And at the time, it was one of the hottest startups, maybe the hottest startup in the United States. And what was the deal that you did with them?

• 51:57Speaker 01

  They could offer to their base, which was extensive, a free box of hair color if people came to our site, gave us their email address. And it was trial, right? The whole concept was trial.

• 52:11Speaker 00

  How much did that cost you? You must have given away a lot of free boxes.

• 52:15Speaker 01

  We gave away a lot of free boxes. The good news of our business is it's very high margin. Right? So it appeared like a lot of money, but compared to the cost of acquiring a customer, it wasn't a lot of money compared to a Facebook ad, right? So I'll never forget, one of our engineers, early on, said, I'm gonna build this thing in the office where a bell would ring. And the bell would ring every multiple of 58, because our first address was 58 South Park. And the Groupon thing went live on Groupon. And the bell just, there was like three days where the bell was ringing every millisecond.

• 52:57Speaker 00

  Wow.

• 52:59Speaker 01

  There were a lot of people that took the offer for the trial.

• 53:02Speaker 00

  And did you pay for the shipping cost, too?

• 53:04Speaker 01

  Yes, we paid for everything.

• 53:05Speaker 00

  Oh, wow. So that was a big, big risk.

• 53:09Speaker 01

  Yes.

• 53:09Speaker 00

  Because you're basically saying, look, we might give away a million, $2 million worth of this stuff. And retail price, or who knows, I don't know. But it's a big risk. I mean, because you're hoping that people are going to come back to you.

• 53:26Speaker 01

  Exactly.

• 53:26Speaker 00

  And buy you.

• 53:27Speaker 01

  Yes. And so we had really good success with the not, we were shocked the number of people who took the box, but then again, it was free, but it was hair color and a big risk.

• 53:39Speaker 00

  Do you remember how many people?

• 53:41Speaker 01

  Yeah, I think that it was maybe 7,000 or something like that. So in a small company, that was substantial from the beginning. Out of the gate, you got 7,000 customers.

• 53:54Speaker 00

  Yeah.

• 53:55Speaker 01

  Then the not good thing happened. Very few of them came back.

• 54:01Speaker 00

  That's Groupon. That was the Groupon story.

• 54:03Speaker 01

  Yeah, exactly.

• 54:03Speaker 00

  People went to the mochi shop and got their matcha lattes and whatever, but they never came back.

• 54:08Speaker 01

  Yeah, that's called not, the business model wasn't sustainable. And for us, it was like, oh, okay, this was deal seekers. That's what we thought. These are just deal seekers. The box is probably sitting there, never used, right? And so that taught us like a lot about these kinds of deals. However, the boomerang of that was all that email that went out to people that didn't take the offer, there was all of a sudden, a lot of exposure and the PR articles and the influencers talking about it. And slowly but surely, we started to introduce in those days, just Facebook ads, which in those days weren't expensive compared to what they are today.

• 54:53Speaker 01

  And we were able to start targeting that very specific 38 plus woman, professional of a certain household income level. And sales started to trickle in, trickle, the word trickle. But the great news was people that purchased it stayed.

• 55:14Speaker 00

  Yeah.

• 55:14Speaker 01

  So, we learned trial by free, not so good. If I pay for it and I love the results, they stay. And that has been a hallmark of the company, high retention.

• 55:25Speaker 00

  Amy, I'm curious about fundraising, right? Because on the surface, somebody could say, okay, well, you know, less than, you know, in 2015, so, you know, about a year after you launch, you raise, do a Series C, and it's 16 million. By this point, you've raised 32 million. A lot of people might hear that and think, you know, wow, she had no, no problems raising money. There are people throwing money at her. You were a very experienced VC. You had run several businesses. You had started your own business. So, you were very experienced. I mean, you're in your 50s, and there, there are reasons why somebody at that phase in your career was going to be successful. But, I don't think that's the entire story, even though the number looks high.

• 56:07Speaker 00

  From what I understand, it actually wasn't as easy as it might seem to raise that money.

• 56:13Speaker 01

  The Series A was highly sought after for some of the reasons that you talked about. And then, when we got to the Series C, not so much. And from that period on, it has been a difficult business to raise money for. And here's the, here's the key. Most people invest in things they can relate to.

• 56:34Speaker 00

  Yes.

• 56:35Speaker 01

  So, if you are a guy, and you know nothing about hair color, and you don't color your hair, or if you do, you're not telling anyone, you don't pay attention to how much your wife or your daughters or those people are doing it around you, it isn't relevant. So, it wasn't a, in retrospect, it felt very personal at that time. Remember, I identify myself with being successful, successful. What do you mean, you said no? Are you telling me my baby is ugly? But in retrospect, I've come to realize that this was not personal. It was just relative to using your capital. This isn't the place that you'd want to invest in.

• 57:16Speaker 01

  Because you didn't think, this is the important part, that we get venture returns. Right? Venture, it's the, it's not, I don't believe you're going to have a successful business, Amy. I don't believe you can give me a 10x. Right? That's the, that's the, that's the piece.

• 57:34Speaker 00

  All right, so you've got this, you've got, you know, you're sort of growing, but imagine it's going to be a ways before you start to see, you know, the kind of growth that you were hoping for. But, I mean, this, again, this is an exciting category and you're getting more and more attention for it. And I know in 2016, you kind of start to explore like a physical shop. You do a pop-up in New York. At that point, had you already started to talk to people about having like coloring locations where people could actually, like salons? Or were you not quite there yet?

• 58:12Speaker 01

  There were two things that happened that spurred that. One stylist started reaching out to us, asking if they could buy our color directly from us to apply to their customer's hair in their salon.

• 58:24Speaker 00

  Like at a wholesale?

• 58:25Speaker 01

  Yeah. And that was like, oh, curious. That's curious to me. And it was not like three, it was like hundreds. And at this point, we had maybe eight stylists that were in our call center. And I started to ask them, do you think this product is good enough to use as salon quality as we advertise? And they're like, absolutely. These are people that used to work in salons. So yes, I went to the board and the board said, interesting idea. Why do you think you can disrupt salons? Because the only reason to do this is if you could do it better than a traditional salon, which took us down a technology path,

• 59:07Speaker 01

  much like the path of that color matching quiz. Could we make appointments on a mobile phone? Could we keep all the data for the customer? Could we build an app for stylists that work for us that made the application only be 90 minutes, which is part of the model, you're in and out in 90 minutes. And so they said, you have $75,000, go wild, see what you can do. So we opened a small pop-up in Flatiron. We spent $25,000 of the 75 for out-of-home advertising, like billboards on sides of the buses and phone booths, still phone booths in New York. And in five weeks, we were totally full. And we had no idea what we were doing.

• 59:52Speaker 01

  And it had been an operating salon, so we didn't need to do the renovation to put sinks in and stuff. But it was really clear that there was a lot of things that were going well, but a lot of things that we had no idea about.

• 1:00:05Speaker 00

  But that was the

• 1:00:06Speaker 01

  That was a genesis.

• 1:00:07Speaker 00

  That was where you were like, we've got to have a permanent location, a permanent color, color bar.

• 1:00:13Speaker 01

  Hair color bar. We need to play in 100% of hair color, not just the at-home box.

• 1:00:19Speaker 00

  And, and I know the model was direct to consumer. And now you've got, you've got colors, stylists, you know, contacting you. So now you're thinking, okay, here's another distribution channel. And then the color bar would be your own salons.

• 1:00:34Speaker 01

  Correct.

• 1:00:35Speaker 00

  So, I mean, now you're talking about, you know, a much more diversified distribution model, but not yet, still not yet thinking about working with, with, with retailers.

• 1:00:49Speaker 01

  Actually, I believe the pop-up happened in 16, but shortly after, in the beginning of 17, Alta contacted us.

• 1:00:58Speaker 00

  Alta contacted you, Alta Beauty, and they said, hey, we want to sell these in our shop, which is great to be contacted by them rather than try and pitch them.

• 1:01:06Speaker 01

  Yeah, it's amazing how branding works. I do radio and podcast commercials to tell the story about naming this after my daughter.

• 1:01:14Speaker 00

  Yeah.

• 1:01:15Speaker 01

  And the, a very senior person at Alta kept hearing it on the way to work and went into the buyer and said, do we have that hair color that's named after a founder's kid? Because it's better ingredients and we're going in that direction. And the woman was like, I don't know what you're talking about. And they, then they contacted us and it just, again, synchronicity, the buyer used to work for our head of product at Sephora. They knew each other. It was just serendipitous.

• 1:01:43Speaker 01

  And in my infinite wisdom, I said, we don't go on other people's shelves. We're a D to C model. We control all of our own business. And my head of product looked at me and said, Amy, I think we should just hear what they have to say. I think you're crazy.

• 1:01:57Speaker 00

  Tell me a little bit about your hires. You know, when you started to raise money, you know, let's go jump back to sort of 2014 when you launch. Did you, did you think I'm just going to go for the top people in this, you know, in the industry? And I'm going to recruit them and try to get them to work with me?

• 1:02:15Speaker 01

  Yes. And we had four co-founders when I started. And I believed that they all represented sort of the cream of the crop from where they came before. And all three of them are gone from the company. Through some of the most painful experiences that I've ever had in my life. These were three people that I cared deeply about. Two were personal friends and in one case I've lost that friendship. That is really hard. And it set us back as well.

• 1:02:55Speaker 01

  Because when a business starts scaling, but the people that you have there can't scale with it. The business moves at the rate of the slowest senior person.

• 1:03:05Speaker 00

  Yeah.

• 1:03:05Speaker 01

  That's what I've come to understand. And I learned a lot. My series A investor said, Amy, four co-founders is too many. And I said, no, it's not. And boy, was he right.

• 1:03:19Speaker 00

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• 1:05:17Speaker 00

  Hey, welcome back to How I Built This. I'm Guy Raz. So it's shortly after launch, around 2014, and Amy's discovered that running Madison Reed with three other co-founders is a lot harder than she thought.

• 1:05:33Speaker 01

  This is on me. This is definitely on me. These are four, you know, three extraordinary human beings, wonderful human beings. This was Amy's magical thinking, as I call it, to put something together with a group of people that I liked, which is a bias, by the way, that one hires for liking a lot, has a certain bias that I would suggest everyone start thinking about. It's not just about like. And I thought I could will it to work. And it didn't. And it cost the, I would say it cost the company a couple of years in retrospect of

• 1:06:15Speaker 01

  what I would call substantial developmental leaps that we needed to take.

• 1:06:24Speaker 00

  I mean, it's very hard. Like, I think a lot of co-founders' success stories happen because of luck, or really do, like marriages. But, you know, some people have certain strategies for figuring out, is this person going to be the right fit? What do you think happened? I mean, were you just, do you think you were mainly focused on sort of resume and credentials rather than, is this person the right fit with me?

• 1:06:49Speaker 01

  I think that all four of us were the right cultural fit with each other. Like, we wrote the values of the company together, and they're still the values of the company. So there wasn't a difference of, if you will, how we wanted the company to operate, or how we treated people, or what were the values. I think that I did not get the level of expertise that one needed to be in a technical business like this. So, you know, one co-founder was focused on finance and the supply chain. And a supply chain part of this business is really a big deal, especially when you have product coming from midly.

• 1:07:30Speaker 01

  And what I thought was that his experience would suggest he knew how to do that. And that started to fall apart as soon as the company scaled.

• 1:07:41Speaker 00

  How did you, how did you unwind that? I mean, you are now the only, you're the last, last person standing here out of the four. How did you, it must have been so complicated because you're running a company, you're raising money, you're trying to be a leader in this category. And then you've got this executive team that you've realized it's not the right, it's just not the right team.

• 1:08:04Speaker 01

  I had to learn really quickly honesty and directness with people. And to be really clear about expectations and to try to separate that I like you from this isn't working, you're not doing your job. Here's tangible examples of what is going on. In the first case, the, it was just clear to everybody in the company that this, the first guy that left, just, he was going through a hard personal time, which made it even worse because, you know, it was a hard time in his life. And so there was a lot of honest conversations between us and that was amicable in the leaving.

• 1:08:46Speaker 01

  I think the key about someone's leaving is to figure out what they need, what motivates them to be okay. And in that case, you know, kept a desk, kept being listed as a co-founder, kept an email address. In the second case, it was clear that this person couldn't do their job as the CMO of the company, that there were no, that we, we couldn't get things done. The hiring was slow. The branding was not as crisp as it needed to be. The media allocation of dollars was off. And that required, that was my closest friend.

• 1:09:27Speaker 01

  And that required just really honest, really honest, painful conversations. We have remended that relationship, but it took a long time.

• 1:09:40Speaker 01

  And then the third one was the hardest because he was the closest to me as the co-founder and handled finance and handled logistics. And I'll never forget that two other relatively senior people came to me and asked me to come into the conference room and said, Amy, where are you? And I'm like, what do you mean? And they're like, so and so is really terrible at his job. And why aren't you doing anything about this? Like, are you not paying attention? And so my denial, I have this saying now, when you know, you know. And I have spent a lot of time like rationalizing, and this would be bad, and here's the reason why I

• 1:10:25Speaker 01

  can't. And every single person that is no longer at Madison Reed has gone on with great things in their life with courage and dignity, and we've treated them well. But I could have skipped, I could have skipped a bunch of humiliation of them. I think it's humiliating for someone to do a bad job.

• 1:10:44Speaker 00

  Yeah. All right. So let's get back to, to the timeline of the story, because where we left off was you were now ready to open a permanent salon, a permanent location. And I think the first one was in New York, right?

• 1:11:01Speaker 01

  The first one was the pop-up in Flatiron closed, and we found a permanent space one block away. So Flatiron was the first one.

• 1:11:09Speaker 00

  In New York, Flatiron, okay.

• 1:11:10Speaker 01

  Yep.

• 1:11:11Speaker 00

  And that was in 2017.

• 1:11:13Speaker 01

  Correct.

• 1:11:14Speaker 00

  But now imagining, imagine, there are two things happening. One is, or three things. You've got Ulta, they want to get into the Madison Reed business and sell your stuff at Ulta stores. You've got a plan to grow, to create more of these color bars, where people could go in and get their hair dyed, instead of doing it at home, you know, or they'd have an option. The third thing was you were really leaning into early into AI. You guys were like, you, I think you really thought, and maybe even still think of your company as almost like an AI company, that, that using the tools that were available, and they weren't as good as they are now, to, I guess, to help people choose the products?

• 1:11:57Speaker 01

  Yes. The, we have a technology-enabled company. We all know that a busy woman lives her life with her phone.

• 1:12:06Speaker 01

  And so the camera, you know, we talked about taking a photo. The camera became something and is something where we let you take a picture and on one side of your hair, you see your natural color and then you can swipe and see Madison Reed colors and see what you might look like. When somebody uses that, they convert 30% more than any other customer that doesn't use it.

• 1:12:28Speaker 00

  Wow.

• 1:12:29Speaker 01

  And in addition, the same quiz is given to every customer on their first Madison Reed hair color bar visit because we have a belief that we should allow you to go to any one of our 95 locations and have the same outcome. And so if we don't log in the color that the stylist puts on your hair, that wouldn't be possible.

• 1:12:49Speaker 00

  How many shades do you have today, by the way?

• 1:12:52Speaker 01

  Close to 100.

• 1:12:53Speaker 00

  Wow. That's a lot of shades of hair. What is the biggest sort of challenge in terms of convincing people that this is what they should buy? Like there's Loreal's of, you know, the 800 ton gorilla on the block here and they probably sell more in a week. I don't know what it is globally, but can you say this is safer or is that kind of treading? I mean, could you say, hey, you know, because of the ingredients we use, you know, you're not going to die of some disease. You can't say that, right? But I mean, can, how close can you get to saying, to making claims without running the risk of getting sued?

• 1:13:33Speaker 01

  So we've invested a lot here to be safe about this. And we talk about a better for you formula and we are very factual about these eight things that we factually have taken out, that nobody else has taken out.

• 1:13:50Speaker 00

  What have you taken out? Tell me.

• 1:13:52Speaker 01

  Okay, you're going to test my ability here.

• 1:13:54Speaker 00

  You don't have to remember all of them, but just give me.

• 1:13:55Speaker 01

  Ammonia, PPD, resorcinol, thiolates, gluten, blah, blah, blah, right?

• 1:14:01Speaker 00

  Got it.

• 1:14:02Speaker 01

  And we've put in three things, ginseng root extract, argan oil, and one other thing and that it is, our hair color is much gentler on people's hair. So we can use words like that.

• 1:14:17Speaker 00

  I'm curious about the branding again, though, aside of this, because when you look at a Madison Reed box at Ulta, it doesn't say that on the box right away. It just says radiant hair color kit, or, you know, like, you know, sometimes you see like food, like an ice cream brand. It says, like, you know, 100 calories and three grams of sugar and blah, blah, blah, just like the macros, right? They call them, call it in food. Is, would there be an advantage to putting those macros or macro equivalent, like argon oil for beautiful blah, blah, blah, collagen for great skin? Like, I don't know. Would that help? Or would that make a difference?

• 1:14:54Speaker 01

  On the back of the box, it says those things. But I think, you know, have you thought about being a CMO guy?

• 1:15:02Speaker 00

  I, I'm, I'm right. That's my next job.

• 1:15:05Speaker 01

  That was pretty good.

• 1:15:06Speaker 00

  All right. Um, as you, okay, so as you begin to expand by 2019, you've got nine locations, New York, San Francisco, Dallas, and then, and then

• 1:15:18Speaker 01

  Atlanta.

• 1:15:18Speaker 00

  Atlanta, beginning to expand. And you come into 2020 with like 130% growth in sales. You're, you're reportedly generating like 100 million revenue. And then we've got the pandemic.

• 1:15:36Speaker 01

  Yes.

• 1:15:36Speaker 00

  At this point, you had nine locations that had opened up and you got to shut them down, especially hair, I mean, salons, that's, they were hit so hard, like restaurants. But, but you did something interesting, which is you did not, I mean, you didn't furlough the 300 people who worked at these color bars. You basically, I guess, what, retrained them to be sales reps?

• 1:15:59Speaker 01

  Yeah. One of the things that was happening was the online business exploded, but it was a lot of women that went to salon. So they had no idea what color to buy, even when the quiz told them they were unsure. So our inbound, we were getting 16,000 inquiries a day.

• 1:16:18Speaker 00

  Wow.

• 1:16:19Speaker 01

  Yes. So you can imagine how overwhelmed our customer service department was. And so I decided, I said, I don't know how long this is going to last, but these people need jobs and we need more trained colorists. The majority of the people in our customer service are ex-colorists. So we had a way to say, okay, out of the 300, how many of you want to stay? And we'll send you a, we, I think bought, well, we bought 300 Google Chromebooks in two days with headsets and shipped them to the people that wanted to stay and then did what would have been months of training in four days and put them to work. Some of them are still in customer service and never went back to stores.

• 1:17:02Speaker 00

  I mean, but, but from a business perspective, were you, did you have, I mean, we've had a lot of brands on the show that, you know, they were running out of cash, they were not doing well, their sales went down 80% overnight. It sounds like the opposite was happening with you guys.

• 1:17:18Speaker 01

  Yes, the opposite was happening. However, I had this instinctual thing like this is going to come to an end. So sure enough, past pandemic, our e-commerce business started to, you know, we weren't gaining as many customers. But we also did an interesting thing was we took a lot of real estate because we understood that commercial real estate and four walls was at an all time low.

• 1:17:50Speaker 00

  So basically you took advantage of all of the cut rate prices to do, to sign leases and that enabled you to expand.

• 1:17:59Speaker 01

  Yeah, you're never going to get real estate in places that we have it today. We could never afford it today if these were brand new deals. And I knew that all those people that came to us were going to go back to their stylist. Yep. So could we give them an opportunity to stay in brand? And it's hard to measure that. We think a number have stayed in brand, but we've also grown since then. So our numbers as a company never went down. We kept the doubling of the business and then have grown since then every year.

• 1:18:32Speaker 00

  All right. Here's a question for you. In that heyday, sort of crazy COVID days, where, you know, many of your customers or most of your customers, they couldn't go to their stylists or their colorists. So they were buying your products, doing it themselves, calling the, the customer service line, getting help, knowing that there was a possibility that they were going to go back to their colorists and they were not going to buy your products. Was there any moment where you thought, now is a good time to see about getting acquired? I mean, we, we talked about Dollar Shave Club. He founded in 2011. I think he was acquired in 2016.

• 1:19:09Speaker 01

  Yeah.

• 1:19:09Speaker 00

  Right? And so did you ever, did that ever cross your mind? Like, hey, we better strike while the iron is hot?

• 1:19:17Speaker 01

  Yes, but having been an investor, I thought the chances of that were slim because remember in the pandemic, a lot of these strategics just went away.

• 1:19:27Speaker 00

  They pulled back.

• 1:19:28Speaker 01

  They pulled back. And in addition, remember, I have a very nascent business model. So I got it really quickly. Like, oh, this could be really good, but not now. And there's a other window that we had already passed. Many of these strategics buy things that are sub $100 million in revenue. When something gets bigger, it becomes harder for them to get the board to approve it.

• 1:19:52Speaker 00

  Then you have to go to a unilever or a Procter and gamble at that, at that level.

• 1:19:57Speaker 01

  Exactly. So our window, sort of, we self-qualified ourselves out of a certain window and.

• 1:20:06Speaker 01

  And now I will say that to you that, you know, there's a limbo window now. A significant limbo window for consumer companies now.

• 1:20:15Speaker 00

  Tough window because for consumer in general.

• 1:20:18Speaker 01

  Yeah, consumer. If you're not AI, you're not, right? That's the, that's the conventional wisdom that if you're not AI, you're, you're not something that's going to give venture returns.

• 1:20:27Speaker 00

  Yeah.

• 1:20:28Speaker 01

  Of course, the founder's going to tell you how different we are. Right? I'm going to, as I call it, the lies one tells themselves. This is one of the things I talk about in the company all the time. You can believe your own stuff because you're used to saying it.

• 1:20:43Speaker 00

  I mean, everything is cyclical, of course. And, and so we're now talking in mid 2025. And yes, I, I hear this across the board that for consumer brands, it's just a different category, especially in food. Like it used to be, if you had 20 million a year, you're going to get acquired for, you know, six, seven X of that, you know? And, and now it's a different world. You have to be doing at least 100 million to get even the attention of a big multinational choir. And, and so when you say there's this limbo window, you mean there's a certain threshold that you have to hit to even attract the interest? Or there just is a lot of?

• 1:21:22Speaker 01

  Well, the, the, you know, when Mike sold Dollar Shave Club, and in those days, growth was the factor that everybody looked at, right? Profitability wasn't. Now, the world has shifted to wanting both.

• 1:21:38Speaker 01

  People want you to grow, you know, at least 20 plus percent top line, but they also require profitability. And to do both those things is not easy.

• 1:21:46Speaker 00

  Very hard.

• 1:21:47Speaker 01

  Yes.

• 1:21:47Speaker 00

  Extremely hard.

• 1:21:49Speaker 01

  So, and if you look at the IPO window, it's non-existent for consumer companies. So, we're still like anybody else, fighting the good fight. I mean, it's not gotten easier.

• 1:22:02Speaker 00

  So I mean, here we are, 2025, and you have a lot of stores and it is a known brand in this space. And it's kind of changed the conversation around hair color. But it is a more challenging time for all consumer brands for a variety of reasons. I mean, you know, there's uncertainty in the economy and there's

• 1:22:28Speaker 01

  Tariffs.

• 1:22:29Speaker 00

  Competition, tariffs, all kinds of things going on. I mean, did you, when you started this process in 2013, did you think that it was something that you would probably sell or it would get acquired in about, within about 10 years? Or was that not on your mind?

• 1:22:48Speaker 01

  I thought it would take 10 years. I thought that this kind of category, because you have to build your reputation and efficacious feedback, you know, really different than a razor, right? This is like, you've altered my appearance. So now I got to figure out whether I'm willing to give you the business to take that risk. So I thought it would be slower. I also thought that we had a chance to build something that was a legacy, an iconic brand that changed the industry. Remember, we're using the same box of hair color in our hair color bars that we sell. It is not a different product. It's the same. So we're an omnichannel business where the box of color we think is superior. Would I have predicted this curve ball now?

• 1:23:33Speaker 01

  No. So I, just like every other entrepreneur in growth stage company, because that's what we are, we are more a private equity target, I wouldn't have predicted the IPO market closing. I wouldn't have predicted some of the instability that consumers are feeling.

• 1:23:54Speaker 01

  But my head's down every day because I want that big outcome.

• 1:23:59Speaker 00

  And so now that the goal, not just for you, but for virtually every consumer brand is growth profitability.

• 1:24:05Speaker 01

  Exactly.

• 1:24:06Speaker 00

  You gotta hit both of those things.

• 1:24:07Speaker 01

  And we are doing both. We are a profitable company now. We crossed profitability last year.

• 1:24:12Speaker 00

  Congratulations.

• 1:24:13Speaker 01

  Thank you. And we are growing pretty significantly. And it's still hard. I think consumers in general are fatigued and scared of the price of eggs and gasoline. And for any consumer company, it has, it has an impact on the emotional state of your buyers. I also think that this is a good thing for us to prove that hair color is pandemic proof and recession proof, because that just means it's going to happen no matter what happens.

• 1:24:49Speaker 00

  Like lipstick.

• 1:24:50Speaker 01

  Like lipstick, the lipstick effect.

• 1:24:52Speaker 00

  Yeah. When you think about the journey you took and all the twists and turns of where you are now, again, I know that's the word success, you have a difficult relationship with it, which I think is healthy. I think a lot of, a lot of people actually do. I do too. But would you say that your success has more to do with how hard you worked or has, has more to do with just luck and being at the right place?

• 1:25:21Speaker 01

  I think there's an element of both. I think I work really hard, really hard. And I think I've been lucky. As I used to say in venture, a great venture capitalist position themselves to get lucky. You know, they hang around in the right places and they talk to the right people and they know enough relationships and they have the capital. But most of the time their outcomes have some luck to do with it. So I think it's a, it's a healthy mixture of both those things. And I feel grateful for that.

• 1:25:55Speaker 00

  My only concern, and I'm just going to be very frank with you, is that if you do get acquired, you're just gonna, you have such itchy feet, you're gonna start another company.

• 1:26:07Speaker 01

  No.

• 1:26:08Speaker 00

  You're gonna be like 75 and you're gonna be like, I'm ready.

• 1:26:10Speaker 01

  Thanks a lot, Guy. I really appreciate this.

• 1:26:11Speaker 00

  I'm ready to go.

• 1:26:12Speaker 01

  That's a dance. Yeah. I'll be, as I joke with my investors, I will have a walker as I ring the bell on the New York Stock Exchange.

• 1:26:19Speaker 00

  Yeah.

• 1:26:20Speaker 01

  And but they can be.

• 1:26:21Speaker 00

  You're like 120, you're gonna be like at your desk.

• 1:26:23Speaker 01

  By the way, they're kind of of similar age, so we'll be together with three walkers. And so, I don't know. You know, I'm, I don't think I'm cut out to retire.

• 1:26:34Speaker 00

  I think you're not. I think you need it.

• 1:26:36Speaker 01

  Yeah. I, you know, I think a lot of it is upbringing. I was raised by a strong woman. You know, in some ways, the harder it gets, the more I dig in. My coach and I talk about, well, could you still be really motivated but not have to torture yourself? That's the essential question. And I think the answer to that is yes. I'm getting there. My wife would tell you I'm much more pleasant to work with.

• 1:27:00Speaker 00

  That's Amy Errett, founder and CEO of Madison Reed. By the way, since the hair color is made in Italy, all of the shades are named for Italian cities. There's Parma, Positano, Siena, Napoli, Verona, Milano, and Amy's favorite, which she happens to use on her own hair, a light icy hue called Roma Blonde. Hey, thanks so much for listening to the show this week. Please make sure to click the follow button on your podcast app so you never miss a new episode of the show. And if you're interested in ideas and insights from the world's greatest entrepreneurs, sign up for my newsletter at guyraz.com or on Substack. This episode was produced

• 1:27:43Speaker 00

  by Sam Paulson with music composed by Ramtin Arablouei. It was edited by Neva Grant with research help from Iman Maani. Our engineers were Patrick Murray and Kwesi Lee. Our production staff also includes Casey Herman, Alex Chung, Kerry Thompson, Catherine Seifer, Carla Estevez, Nora Gill, Ramel Wood, Andrea Bruce, and Elaine Coats. I'm Guy Raz, and you've been listening to How I Built This.