This is one of the most surreal business stories I've read this year, take a look, it's really well worth it.
Gregg Renfrew, the founder and chief executive of Beautycounter, helped popularize the idea of “clean beauty” — skin-care products made without chemical additives. Credit...Philip Cheung for The New York Times
Beautycounter was a fast-growing beauty startup, led by founder Gregg Renfrew, which had been fueled by $100 million in venture capital. In April 2021, after eight years in business, it was acquired by private equity firm the Carlyle Group in a $700-million deal that valued the company at $1 billion.
Executive summary: in a couple of years, Carlyle (and Ms. Renfrew) destroyed a $400 million, 65,000 employee company by:
👉 Destroying the sales force
👉 Screwing the product’s uniqueness and major selling point
👉 Destroying the company culture
👉 Having chaos at the top
👉 Screwing up the technology
It’s worth reading, trust me.
Beautycounter.
The brand was beloved by health-conscious Instagram influencers, wealthy suburban moms, and celebs like Reese Witherspoon and Rashida Jones.
The company’s “army” of 65,000 independent sellers, meanwhile, lobbied lawmakers for better regulation of personal-care products.
On April 17, 2024, all 200-plus Beautycounter employees were asked to join an emergency Zoom meeting. Renfrew announced that Beautycounter was shuttering. All employees would be fired. There would be no severance payments. Employees would not even be entitled to COBRA.
It was a shocking end for a brand that was considered a success.
It’s also one of the most interesting rags to riches to rags stories I’ve read in a long time.
Rags to Riches
Founder Gregg Renfrew was known for her unwavering advocacy for cleaning up personal-care products. She regularly visited Congress to push for legislation that would expand oversight of the beauty industry by the Food and Drug Administration.
Ms. Renfrew had built the decade-old company around a mission: making cosmetic products without a host of commonly used chemicals.
The products were distributed through independent sellers in a multilevel marketing model that has been used for vitamin supplements, cosmetics and Tupperware.
Beautycounter was like a newfangled Mary Kay with an additive-free gospel and bottles of $87 antioxidant cream.
In May 2021, Carlyle invested roughly $600 million.
Jay Sammons, who ran Carlyle’s consumer products business, had already helped OGX hair care products generate high returns for Carlyle. He had been watching Beautycounter’s progress under its charismatic founder and reckoned it could be even bigger.
When Carlyle bought Beautycounter everything changed.
Marc Rey, who replaced Ms. Renfrew as Beautycounter’s chief executive in early 2022, stayed only 15 months.Credit...Leon Bennett/Getty Images
Ken Wasik - Capstone
The Carlyle investment
When Carlyle bought its controlling share, Ms. Renfrew got about $50 million for selling part of her stake and stayed on as chief executive. She and the private equity firm were aligned in their big plans: Raise annual sales from where they stood, about $400 million, to $1 billion, and take Beautycounter public.
👉 From our POV… mistake #1 – Increase sales of a multilevel company 150%. If it takes 65,000 people to sell $400 million, it would take, minimum 162,500 people to reach $1 billion, probably more, as the sales/person (currently $6,154 would probably be less).
Beautycounter’s demise didn’t surprise Ken Wasik either. Wasik, the head of the consumer investment banking group at Capstone Partners said: “Multilevel marketing companies typically have a very strong founder that defines the culture, and that culture is hard to change. The problems happen when people buy it and think they can take it mainstream.”
To be honest, there were other factors:
- As the pandemic receded, consumer spending, which had been high due to the incentives, began slowing down.
- And as people could leave their homes, they found other things to do.
- There were many more competitors in the “Clean Beauty” category
Riches to Rags
I encourage you to read both articles linked below, from our POV, these were some of the more egregious mistakes made by Carlyle and Ms. Renfrew:
1 – Destroyed the sales force that made success possible.
A few months into Mr. Rey’s (the new CEO) tenure, the company dropped a bomb: Top sellers would be subject to a new compensation system that drastically reduced their commissions.
Then when some of the resellers tried to get work with other multilevel companies, Carlyle hit them with non-solicitation agreements that, according to a lawsuit, were hidden in the documents and could not be reviewed before signing.
By January 2024, Beautycounter had only 35,000 resellers, from 65,000 3 years prior.
2 – Destroyed the uniqueness of the product.
Mr. Rey (the new CEO) attacked the founding ethos of the company. The sellers, he said, should stop emphasizing “clean beauty,” because it was no longer “sexy” or a clear differentiator in the beauty industry. Instead, Mr. Rey said, the new “sexy” was “the environment.”
3 – Destroyed the company culture.
“Beautycounter has always been a female-led, female-empowering company,” says Nancy, an early employee who left the company when Rey joined. “The culture shifted overnight.”
In another sign that the company had fundamentally changed, Beautycounter made a deal with Ulta to sell products on the retailer’s website and in 1,400 of its stores.
4 – Chaos at the top. The revolving door at the top saw 3 CEOs in a short time.
👉 May 2021 (Carlyle acquires Beautycounter) – Gregg Renfrew remains as CEO.
👉 February 2022 – The board names Marc Rey (Held senior roles at L’Oreal USA and Shiseido)
👉 May 2023 - Mindy Mackenzie, a Carlyle executive and Beautycounter board member, stepped in as interim chief executive. Mackenzie had no beauty industry experience
👉 January 2024 – Gregg Renfrew announces she is back as CEO during a conference at the Four Seasons Resort Oahu at Ko Olina in Hawaii. The audience cheered.
👉 Mid-March 2024 - Carlyle hands the business over to its lenders, Bank of America and JPMorgan Chase, which would be in charge of selling what was left.
👉 April 2024, the company went into foreclosure, and Ms. Renfrew bought the rights to the Beautycounter name and other assets from its lenders for several million dollars.
5 – Screwed up on technology.
The company rolled out a new website in October 2023. It was the culmination of the millions that Carlyle had spent to upgrade the technology. But even that effort was troubled. The site often crashed, and its once user-friendly parts — like the way it would repopulate addresses and loyalty rewards information — stopped working.
So, in a couple of years, Carlyle (and Ms. Renfrew) destroyed a $400 million, 65,000 employee company by:
👉 Destroying the sales force
👉 Screwing the product’s uniqueness and major selling point
👉 Destroying the company culture
👉 Having chaos at the top
👉 Screwing up the technology
Ms. Renfrew, shown in 2018, has told sellers that she is trying to resuscitate her skin care brand. Credit...Philip Cheung for The New York Times
Rags to ?
Renfrew isn’t giving up on Beautycounter, though. On May 6, she announced that she had bought some Beautycounter assets from Carlyle, including the right to sell products, and was planning to relaunch the brand later this year.
(You can see her website here: https://www.beautycounter.com)
Bringing Beautycounter back to life will be an uphill battle. Arguably, the most challenging part will be figuring out how the new business will operate and hiring the right people to staff it. Many former employees are so frustrated by how Beautycounter treated them that they will not go back.
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