# Scaling e.l.f. Cosmetics: Disruptive Value Pricing Strategy

**Podcast:** How I Built This with Guy Raz
**Published:** 2026-06-29

## Transcript

OK, so $5.99, whatever, flat rate.
And you're going to sell it through the website.
And it's complicated.
But the other question to have is, how are you going to handle the logistics?
I mean, you have it sitting in a warehouse.
But who's going to package the stuff up and send it out?
So honestly, we didn't even think about logistics.
We were just following Glamour Magazine's lead.
They wanted us to make a website so we could get in the magazine.
We didn't think we were going to get an order.
Welcome to How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built.
I'm Guy Raz, and on the show today, how Joey Shama started a dollar cosmetics brand that turned into a billion-dollar business.
Among the 33 cars that lined up to race the Indy 500 this year, one was particularly notable.
It was painted in shades of pink.
And its driver?
The only female competing this year, Catherine Legge.
But perhaps as notable as the driver was the car's main sponsor.
Not Pennzoil or Firestone or Coors Light, but rather...
Elf Cosmetics, the first time ever that a beauty brand sponsored an IndyCar.
And if you know something about Elf, that's not entirely surprising, because Elf was essentially built as a disruptor brand back in 2004.
At that time, people either bought cosmetics at the drugstore, where they were cheap, or at the department store, where they cost a lot more.
And the assumption was that price equaled quality.
Drugstore makeup just wasn't as good as the high-end stuff.
But when Elf launched, it upended that model.
At the time, discount makeup cost about $5 or $6 for a lipstick or blush.
But Elf products, all of them, cost a dollar.
And the thing is, they didn't look or feel cheap.
And it meant that customers could take a risk of trying out more of their products, which made the brand...
particularly popular with teens and tweens.
When Joey Shama and his original partner, Scott Vincent Borba, started Elf, they ran into a lot of roadblocks.
For starters, the big box retailers weren't interested.
They didn't think there was a market for their products.
But within a few years, the brand started to gain traction.
Joey sold most of the company back in 2014, but he managed to scale it to a pretty successful brand in 10 years.
And today?
Elf is publicly traded with a market cap of around $4 billion.
Not surprisingly, the $1 price point has gone away, but the products are still relatively inexpensive, between $5 and $15.
As for Joey, he grew up in Brooklyn in the 1980s and 90s.
His dad had an apparel business, and most of the people in the community, including Joey's family, were of Syrian Jewish origin.
We are a very tight-knit community.
We do a lot of things together.
We have a very strong network.
And we are very entrepreneurial in spirit.
I came from a community of merchants.
We buy product.
We sell product.
We know how to do that.
And that's something I always aspired to.
I wanted to do it differently.
So I had a passion for making money.
I had a passion for making a name for myself.
And I had a passion for making an impact.
Whatever was going to happen, it was.
It was going to happen.
I remember when I was in high school, I was president of a teen division of our community center.
And the woman who was running it at the time said, I don't know how, but I know you're going to be successful.
And I really go back to that meeting that really stuck with me of saying, I'm going to be successful.
I don't know how.
If it was beauty, it was beauty.
If it was yoga mats, it was yoga mats.
It was apparel, it was apparel.
It was going to happen.
Okay.
So you grow up in a home of, you know, your dad's an entrepreneur.
And did you always, you know, were you kind of encouraged from a young age to join the business?
Was that you were sort of groomed to do?
I mean, I think my parents and they really afforded me the flexibility to follow what I wanted to do.
I think it was a possibility, but my personal fear in life was joining my father's company and not being a productive member of it and just being the boss's son and not really proving my worth and being successful on my own.
And that was my biggest fear.
Yeah.
But I think you did wind up working with your dad for a while, right?
I mean, I know that for college, you went to NYU and you studied business, but I think you also worked with your dad during that time, right?
Yeah.
So I worked with my dad and his apparel company as I was in college.
So I was learning the basics.
I was learning what a...
what a purchase order was.
I was learning what a system was to track orders, what delivery dates meant, how to sell.
I did a little bit of sales for some of the closeouts or the leftover inventory that they had.
So that's how I really got my feet wet.
Okay.
I want to go to how this begins because what I've heard is it's 2002 and you're at a party in Los Angeles and you meet this guy, Scott Vincent Borba.
First of all, what were you doing in Los Angeles?
What was this party?
You're a senior in college at that time.
Yeah.
So that's a story that's out there, but that's not the real deal.
Okay, good.
Okay.
So actually, I was introduced to Scott Vincent Borba through a mutual friend.
And the concept was that Scott was a beauty maven.
He really understood the beauty industry.
He worked at a lot of different beauty companies.
He was one of the first.
employees at a brand called Hard Candy.
He was at Neutrogena running the Neutrogena Color Cosmetics brand.
And he had this idea that he wanted to create a line of cosmetics.
And we were, my father was looking maybe with me to invest in a business and to help.
And that's kind of where it came from.
So basically you and your dad were kind of looking around for some ideas and somehow somebody got to Scott and said, oh, I know these guys in New York who are looking to start something.
Like it was, it was like, Basically that?
Basically that.
Okay, he was living in L.A., right?
Or was he living in New York?
It was funny because he was living in Manhattan Beach, California, and I was living in Manhattan Beach, New York.
So that was just a funny coincidence.
But he was in California.
What was Scott's concept?
Scott's concept was a line of cosmetics.
Similar to that of hard candy, it was a value line of cosmetics.
When we looked at the landscape of the retail market, there were still a lot of big box retailers.
Two of the biggest ones in the early 2000s that were growing exponentially were the dollar chains.
So it was Family Dollar, Dollar General.
They were growing to 5, 6, 7,000 doors.
And the problem they had is they didn't have quality and consistency on their shelves.
So basically, they either had an unbranded, no focus on quality brand, where it was two items on a blister card for a dollar, a lipstick and a nail polish or whatever.
Or they had access to some branded merchandise that was left over from a drugstore or was a return or was extra.
So you had the CoverGirl colors that you didn't want.
Maybe you could find the one you wanted.
It was at a discount, but it wasn't planogrammed and it wasn't consistent.
So the idea is, hey, let's actually instead of a plain wrap lipstick or seven, eight dollar, you know, CoverGirl or Revlon or whatever it costs.
something that is branded as cheap as the plain wrap.
Exactly.
But you're trying to figure out this kind of wormhole, right?
Can we get something good enough that is really cheap to manufacture that we can sell for a dollar, right?
Because it's a dollar store.
Is that what you're thinking?
Yeah.
Basically, what we learned really early on is when you break down the cosmetics to formulations and componentry, formulations, yes, you can hit that price point.
The real artistry, if you may.
is in the componentry where we couldn't afford metal.
We had to go plastic or we couldn't afford things that were multi-parts and it needed to be one part or one mold extrusion.
So we needed to really figure that part out.
But the actual cosmetics, we were able to hit that dollar price point.
Okay.
So you guys are on Borba Scott.
You're going to form this business.
And you guys had relationships in Asia with...
apparel businesses.
So tell me a little bit about how you started to see whether you could actually do this.
What did you, who did you start to talk to, to see if you could actually make this stuff for, you know, for cheap?
So I headed over to Asia.
It was the summer of 2003.
We had one of my father's longtime office managers, was a very entrepreneurial guy.
And he introduced us to the first factory that we worked with.
And I remember trying on the mascara in the factory, seeing if it was waterproof, had no idea what I was doing.
So this was in August 2003, and it took the better part of 10 months.
It was June 2004 when we first had product to sell.
So let's kind of dig into this.
I'm just thinking about like...
lipstick, for example, right?
It's like whatever goes into the actual lipstick and then you put it in the lipstick container, which is plastic and it's got a cap on it and then it's going to go into, you know, what's it called?
A blister pack, right?
That you can put on a shelf or something like that.
How do you actually make that for a dollar?
I mean, less than a dollar.
Sorry, much less than that.
You got to sell it for a dollar.
So there were products out there.
We weren't the first person to sell lipstick for a dollar.
We weren't the cheapest guy selling lipstick for a dollar.
We were just creating a brand around it.
We were creating an emotional affinity.
We were making sure it looked good and it felt good.
But still, help me understand, like, you know, blush, you know, or a powder, mascara.
How does that just the container?
And the brush and then the actual cosmetics, it's got to be like 50, 60 cents at most so you can mark it up and make some margin.
So it was about half of that because our target goods cost was about 35 cents.
I think back to the simplicity angle, everything we sold, we sold it for 59 cents so they could retail it for a dollar.
Right, of course.
How do you make it for, how do you make?
Something like that for 35 cents.
Well, that's what it is what I'm trying to say.
That's what it costs.
Wow.
Like that's how much it costs everybody.
Now, yes, you can put active ingredients.
And yes, this was 25 years ago.
And yes, there are more expensive componentry and finishes and all that.
But you're also paying for the corporate overhead.
You're paying for the infrastructure.
You're paying for the spokespeople.
You're paying for the marketing campaigns.
You're paying for the shelf space.
You're paying for the returns.
You're paying for the warehousing.
And all of that, if not done efficiently, it won't work.
But when you look at a pure cost of goods sold across the market for what we wanted to bring to market, it was not that challenging.
How were you guys?
I mean, you had Scott involved.
He was in L.A.
You're in New York.
Were you working out of offices of the apparel company?
You know, you're working with contractors.
Scott was.
in full disclosure, still working for other cosmetic companies, but working for us on the nights and weekends.
He was doing the product development.
So yes, we did use my father's apparel office.
My father's apparel company had a warehouse in Edison, New Jersey.
So we were definitely leveraging anything we could across my father's supply chain.
And we were, you know, working nights and weekends when we needed to.
So you have, you identify a manufacturer in China.
And how many SKUs are you going to, how many different products are you going to make?
So 13 categories we started with and 67 SKUs.
So we had eyeliner with a sharpener.
We had a pressed powder that had salicylic acid in it.
We had a few lip glosses.
One of them was a plumper.
One of them was inspired by Stila, which was a high-end brand at the time.
an eye shadow that had four colors in it, so a quad of eye shadows.
That was, you know, it was across eyes, lip, and face.
Eyes, lips, and face, which is how you came to call it Elf.
Eyes, lips, face, right?
Exactly.
And who were you thinking were your competitors?
Did you think that Maybelline and Revlon and L'Oreal were your competitors, or not really, because they were charging four or five times the amount that you guys would be charging?
In terms of the space we were trying to get to, yes, very much.
Maybelline, CoverGirl.
There were some smaller brands, NYC and Wet n Wild.
Those are more of our core, core competitors because they were the value brands, even Rimmel London.
But both Rimmel London and NYC were owned by Cody.
Wet n Wild was a standalone.
But that was the problem.
in the early days, that you had a few incumbents that owned a bunch of brands and controlled all the space at retail.
So you had L'Oreal, which was L'Oreal and Maybelline.
You had P&G, which owned CoverGirl at the time.
So there was no room to you to box your way in two feet of space because it was all controlled by four or five companies, even if it was 12 brands on shelf.
And so here's a question for you.
We know from all the work we've done on this show over the last 10 years that the margins on cosmetics can be incredible.
It's like vitamins.
It can be an amazing business if you do it right.
So the raw materials, even high-end materials, are not that expensive.
And essentially, a huge chunk of their costs were marketing, right?
Like if it's Revlon, it was Cindy Crawford, right?
Cindy Crawford, Halle Berry.
Yes.
But that gives them a lot of reach and a lot of publicity.
You're saying that that is a big reason why even the value brands like CoverGirl or Revlon were comparatively expensive.
Yes.
I used to have a slide in one of my earlier sales decks that had, if you look at the cost of the lipstick, how much is actually in the lipstick versus going everywhere else?
And we took that.
apparel mentality from my father's business of you buy something, you market up, you sell something, as opposed to you buy something, you pay to market it, you pay to get shelf space, you pay to promote it, and then you sell it.
And we took out all that middle and we were just delivering value to the customer.
I mean, it's interesting because we have done brands on the show, not just cosmetics, but let's talk about cosmetics for a moment, that have very deliberately priced their products at a higher price point to signal quality, to signal luxury.
So there is that strategy too.
A thousand percent.
I mean, so much so that one of our biggest obstacles in the early years was retailers afraid to put our product on shelves because they didn't want to trade the customer down.
If they're selling a $6 lip gloss.
And I'm selling a dollar lip gloss and they customer buys mine over theirs.
Then they just lost $5 of sales.
And by the way, the first order, how much did the first order cost?
Roughly.
Did it cost you guys?
To bring in the goods?
Yeah.
It was $150,000 order.
And this was basically an investment that you guys put into it.
You guys put this money into it.
Yes, we bought the goods.
It was one container.
It was about 600,000 pieces.
And the strategy was, while we're manufacturing this, we're going to start to pitch dollar stores, dollar general.
Is that what you thought you would do?
Yes.
We had a sales rep agency for dollar general.
I remember being at that meeting.
We pitched the whole line.
We went to dollar general and family dollar.
And we said, we've got the answer for you.
Quality over quantity.
And they politely said, we like what you're doing, but we are committed to quantity over quality.
But that was just a few of the dollar store locations.
Did you try to approach others?
So we went, there's a trade show called ECRM.
You meet a lot of retailers.
You're kind of guaranteed a meeting, a 20-minute or 10-minute meeting with each retailer.
And it's kind of like a round robin.
And that's where we met 99 cent only and Dollar Tree.
But, you know, as we were trying to get out there, we just kept hearing we're committed to the quantity.
This doesn't make sense.
I don't want to trade my customer down.
I don't have room for it.
Like it was no, no, no, no.
Yeah.
Up until this point, I mean, you're trying to get this into dollar and dollar general, which was the whole point of this product.
You're thinking that's where we go.
That's where our market is.
That's where it's going to crush it.
And you have zero validation.
Every meeting you have with the 99 cent store, dollar store people is like, no, no, no, no, no.
Did you think maybe I was wrong?
Yes.
Oh, yes.
Very much.
Very worried.
Yes.
This is my first foray into business.
I'm newly married.
I have, you know, I'm trying to build my career.
You know, you have to live.
Like, how are we going to make this a business?
I mean, we knew we thought we had something, but it was, it didn't feel like it at the time.
And I remember, I think it was in about February or January, early 2004, I was driving to the city and it was just as Alex Rodriguez.
was signed by the Yankees.
And there was an underwear brand called 2Xist.
And 2Xist had sent a package of underwear to his hotel or apartment.
And they were talking about it on the radio.
And I was like, wait, how did this happen?
And I actually knew one of the people involved with the company.
And I said, how did that happen?
He's like, oh, we have a PR firm.
Interesting.
And I was like, oh, PR.
That sounds cheaper than marketing.
All right.
So you hear the story about A-Rod and the underwear and you find out, you figure out which PR firm was behind that plan.
Yep.
I reach out to the PR firm.
I tell them about the concept and I don't know if they loved it or wanted another client, but they scheduled what they call desk side editor appointments.
So it was me and it was one of the members of the PR firm who was the rep on our account.
Her name was Amanda.
Yeah.
Okay.
Now, so here's the thing.
You bring it to these editors, right?
And you're showing them product.
And you have a brand.
I'm assuming you hired an agency to come up with a logo for Elf and a look?
Yes.
We had an agency in Costa Mesa, California called Juno Design.
They created the logo, some of the lookbooks, some of the brand catalog.
And then we also had a digital agency that built the website.
Wow.
Was it, I mean, was it really expensive to do that?
I mean, now you make a logo on AI.
I'm not saying, but was it really expensive to do that?
It must not have been cheap.
It wasn't cheap, but it wasn't real.
I mean, we were bootstrapping it.
We didn't have any revenue coming in.
My father was funding everything we needed.
And it was, we did everything as cost effectively as possible.
Okay.
So now you've got a, you know, this concept.
And you've got a design firm.
And you bring it around to these editors, right?
Yes.
We went around to all the beauty editors in the city, in New York City, from Glamour to Lucky to Good Housekeeping to Oprah to Seventeen, Vogue, everything.
And we pitched them about this line of color cosmetics that we wanted to bring to the market.
We walked them through the whole line, how it went from eyes, lips, face, how it was inspired by Prestige, how the quality was great product.
And then at the end, we said, oh, and by the way, everything's a dollar.
And then they were blown away.
So you're kind of keeping it a secret until the very end, the price.
I think there was the wow factor that like, okay, here's another guy showing me another line of cosmetics.
Like, it looks good, but...
why is it any different than the other $12 lip gloss I saw yesterday or I'll see at four o'clock today?
But then when we told them the price, then it was like that was the winning factor.
And then I remember it was late April.
I was walking in the city.
I got a call from the PR firm.
Great news.
Glamour Magazine wants to put you in the magazine for the next month's issue.
Well, it was actually Glamour Magazine called me up and said, we want to put you in the magazine.
Okay.
But we have a problem because our readers need to be able to get you.
Right.
We need to buy you.
So they gave us an ultimatum.
Yeah.
They said either you're in all Walgreens by next month, highly unlikely, or open a website so that the customer can get you.
But nobody shopped on web.
I mean, not nobody, but people really didn't.
Nobody shopped on a website.
We didn't even know what e-commerce was.
It was like us and Amazon at the time.
And you couldn't get into Walgreens because you couldn't get in anywhere.
No, not even.
And even if we could, you'd need to set up ship, get in shelves, off planogram.
It was not even an option.
When we come back in just a moment, Joey gets a much-coveted meeting with a buyer from Target.
But then she asks a question that he simply cannot answer.
Stay with us.
I'm Guy Raz, and you're listening to How I Built This.
Hey, welcome back to How I Built This.
I'm Guy Raz.
So it's April of 2004, and Glamour magazine wants to feature e.l.f.
cosmetics in an upcoming issue.
But first, Joey has to make sure they have a working website.
So we called my web developer, and I said, can you make us an e-commerce part of our website?
And we have 30 days to do it.
He says, yes, we can do it.
I say, and how much is it going to cost?
And he said, $5,000.
I said, $5,000?
I don't know.
That's a lot.
I can't really afford it.
We're not selling the product.
I go, how about I give you some equity in my company?
He said, I don't think so.
I think we really need the $5,000.
So we gave him $5,000.
He built an e-commerce site.
If you saw the e-commerce site today, you would cringe.
It was the clunkiest e-commerce site.
Not to his fault.
That was just the time.
And basically, we launched the e-commerce website on June 14th, 2004.
Okay.
So this was, and I'm sure there was like multiple steps and because it wasn't Stripe, there wasn't, it was just hard to get a credit card in.
I mean, it wasn't hard.
We needed a credit card processor, authorized.net.
Yeah, it was a lot.
And then once you got the order, you would still have to ship it out.
I'm assuming you charged for shipping too at that time.
So basically, we decided early on, we're selling dollar cosmetics.
How do we charge for shipping?
Yeah.
I'm pretty sure the post office had like a flat rate, like if it's a certain size.
Right.
So we did a flat rate of $5.95 and we did not accept returns.
Okay.
So it's hard.
You're going to buy cosmetics on this internet thing that you've never purchased on before and you're really going to hope you like it because you're already in it for at least $6, $7 and you can't send it back.
Yeah.
And this is probably not UPS, so it's not traceable.
It's probably like priority mail or something.
It was priority mail, yes.
Which means it could get lost and all this stuff.
So, okay, so $5.99, whatever, flat rate, and you're going to sell it through the website.
And it's complicated.
But the other question to have is, how are you going to handle the logistics?
I mean, you have it in a warehouse, sitting in a warehouse.
But, I mean...
who's going to package the stuff up and send it out?
So honestly, we didn't even think about logistics.
We were just following Glamour Magazine's lead.
They wanted us to make a website so we could get in the magazine.
We didn't think we were going to get an order.
So we didn't think it all the way through.
We did have a credit card processor.
In the warehouse, there was an office.
So we had some workers and people in the warehouse that could help out if we got two orders, three orders.
Who knew?
We had no idea that e-commerce would ever become something.
And now it's just you go, you Shopify or whatever, and it's all automated.
But then if somebody put their credit card in, you would get like some kind of email or some kind of communication, which you then had to take that information and manually put it into a processor, right?
Like a credit card machine.
It was so cumbersome.
We needed to print it out and then go into the portal, put the credit card number.
Some of the credit cards would bounce back.
Then we'd have to email the customer.
Your credit card's not working.
Then we would come back and then we'd print the label and then weigh the package and then drop it at the post office.
OK, you've got 150 grand worth of inventory, plus the shipping costs, plus all the ancillary costs.
I mean, who knows how much you're in now, how much cash has gone into this business?
You know, a lot of people may not even know this, but if you don't.
There was a time where Glamour magazine or Vogue, like that moved product.
It was a big deal.
The early 2000s and the late 90s were like the heyday of big magazines.
And even if a tiny mention could have a huge impact.
Yes.
But this issue comes out, from what I understand, on June 16th, 2004.
And it's not a huge article about, it's like a couple lines about your cosmetics, right?
It's one blurb and a picture of our concealer.
Okay.
And does anything happen?
Do you notice any movement right away?
Yes.
So I remember walking into the office and we had this screen, like a back end to the website, where if someone placed an order, you'd see the order, the date, and the value.
So all of a sudden we walked in day one and we had 400 orders.
Wow.
And, you know.
All the products, the $150,000 of inventory came in the assortment packs.
And I remember my father's CFO, who was helping out.
We were opening boxes.
This one had purples in it.
This one had pinks.
We had pallets of inventory that only had this color out because that was the hottest seller.
So there was stuff all over the place.
So you'd be like opening one box.
I got the purple here.
Somebody else is like, oh, I've got the candy apple red lip gloss in this one or whatever.
Like, that's literally what you're doing?
Yeah.
I mean, after the first six orders, things just start.
Like, what do we do now?
So then we took them out of those assortment packs.
We built 67 boxes.
Each box had the unique item.
Everybody.
I remember my brother, who's now a doctor, he came in.
He picked a few orders.
That was not for him.
He never came back, went to med school.
We never saw him again in the business.
But we were.
Finding anyone that could help us pick and pack orders.
Joey, I'm curious.
I mean, did you get tons of orders from that Glamour magazine or just, you know, even if it was 50 orders a day, it was exciting?
Or was it more than that?
I think it was more than the dollars.
It was the validation.
It was like, yes, we believed that we had something here.
So over the next year and a half.
We had a lot of these glamour placements, which were honestly great placements and we wouldn't be here without them.
And then we had even better placement.
We had like, not brand features, but there was one feature that we had in Good Housekeeping magazine.
Now, if you remember Good Housekeeping, there was nothing better than a Good Housekeeping seal of approval.
And Good Housekeeping gave a feature of our lip gloss at a dollar.
versus a lip gloss that was sold in Sephora for $24 of Stila Cosmetics.
And they said, whichever one you buy, you will love it.
I had that blown up in the office.
That was a huge win for us.
Oprah Magazine did a backstory cover where they laid out all our makeup and then they made like a piece of art of our makeup around a dollar sign.
And they did a whole article.
And every time one of those bigger ones happened, we felt a spike.
And by the way, in that first year, 2004, did you try and pitch Sephora?
No, there wasn't.
You knew that they weren't going to carry your products.
I mean, I don't think we could afford to be in there.
In that first year of business, because you really, first orders come in in June of 2004, do you remember how much you guys did in sales that year?
I want to say about 400,000.
Okay.
So pretty good.
I mean, means you sold out your initial inventory, which means you had to bring in more inventory, right?
Yes.
All right.
So exciting.
But was it stressful to you?
Did you feel like, I am still worried that this might not work?
Every day, every night.
Nights were worse than days because days you're busy.
But yes, I remember.
Maybe in the next year, we had a budget of $125,000 a month of sales.
You had to hit that number.
We had to hit $125,000 of sales a month.
Why was that your target?
I don't remember why it was.
I just remember that number.
And I remember we had our web business.
We had very, very small regional business where you had a chain with four stores or six stores or eight stores that carried our product.
And then we had a few international inquiries.
I remember one from Australia and one from the UK, actually, in Wales.
And they started like, can we copy what you're doing and kind of take it to our market and buy the product from you?
Yeah.
And I said, sure.
At this point, why not?
Like, you're an accountant like any other, and I don't have to worry about all the international complexities.
Wow.
I'm saying when you put all those together, I think we were able to hit maybe $125,000 a month.
But I think it was barely to cover costs.
There was no growth.
Any new inventory had to be funded by my father's capital.
Were you worried that he might be just flushing money down the toilet?
Yes.
It was stressful.
I mean, every sales meeting was maybe this was the unlock.
In the early days, I remember...
I was newly married.
I was living in an apartment over my parents' house.
I just had my first son in January 2004.
And I had to, you know, we live in a community that has high expectations and we needed to figure it out.
Did it cause any tension between you and your dad?
No.
He didn't have very, very deep pockets, but he believed in it.
And he was happy, I think, from what I saw.
To not stress about it, he felt good about it and was managing it and wasn't afraid of it.
And I guess you could have, if everything was just disastrous, liquidated.
Like try and sell it for a cut rate price and maybe recover some of your investment.
It's not that easy on a dollar product because you're already at 59 cents selling price.
So I'm going to sell it to you for what, 30, 20?
I mean, it's hard.
Yeah.
OK, so 2004, you're, you know, you're kind of incrementally growing.
And I read that you also managed to get a pitch to Target that year, that you managed to make a pitch to them.
What was their reaction?
So the first time I met the Target buyer was at one of that ECRM trade shows where you are scheduled to meet all the buyers in a 10 minute.
And I tell her this whole pitch.
about quality, cosmetics, color, everything.
And her response was, Elf?
Why would I want to put something called Elf on my face?
And that was like, I didn't know what to say.
I don't even recall my response, but that was a challenge.
And it ended up actually, we stayed in touch with the buying team.
I believe she went off the desk.
And I don't know, somehow, We got a call two months or sometime later where they had an opening and they had not in the cosmetic section, but in what they call the trial and travel section.
So we were able to put two or three different items there, the same item, different colors, and we had a bin.
And that really ended up being a game changer for us.
But that didn't happen in the first year.
No, it happened later in 2000.
2006, maybe 2005.
Right.
Because I read that the first real retailer, like significant retailer that you managed to get into was HEB, the supermarket chain based in San Antonio.
Yeah.
So the HEB, that was one of our aha moments as a company.
Because through all of our no's that we got in the early days, one of the biggest no that we got was we like the product, but we don't want to trade our customer down.
Like if I'm a retailer, if I'm at Walgreens and I'm selling a CoverGirl lip gloss for $6 and I'm going to sell an Elf lip gloss for $1, now there's $5 that the company, the retailer is not getting.
And it was actually H-E-B, which is a high volume supermarket chain in Texas that said, we're going to try it.
And at that point, we had developed for the local markets, this four-sided spinner rack.
It held about 954 pieces, something like that.
And HEB was open to putting these racks in each of their stores.
So this is like a six foot high rack, something like that?
Yes, exactly.
So you could spin that rack and it had, you know, 954 products, depending on the size of the product.
So basically we sold this into her and the thing sold out in minutes.
And at HEB?
At HEB.
And did it go into all the HEB stores or just a few?
I think it went into 30.
But the best thing that happened with HEB is we get an email from the buyer the next morning saying, I was wrong.
This brand is incremental and impulsive.
Because they saw that because of the price, I wasn't buying one or the other.
I wasn't not buying CoverGirl for $5 or $6 and just buying e.l.f., but I was buying CoverGirl.
end buying e.l.f.
or I still have five dollars to spend but I'm going to buy five products because there's such an array of product and really you know maximize my dollar.
So essentially it wasn't actually eating into the sales of CoverGirl or other more expensive products it was just people were buying more product in that department.
Yeah it was adding more to their top line not taking away from their sales volume.
And that changed our whole sales pitch and the whole everything going forward.
And then we went in all HEBs.
And then there were some HEBs that put four racks into the store, each store.
And it became, it was our first viral sensation, I guess.
So how did that, you said it changed our approach.
How did it change your approach in how you sold this, try to pitch this product?
Because as we're meeting retailers, And their response is, I don't want to trade my customer down.
We're saying, look, HEB is doing it.
And it's not.
It's adding incrementality.
They're selling more.
It was a combination of impulsive, meaning I didn't want something, but I'm going to go get it anyway because it's so cheap.
Maybe I was going to buy a candy bar and said I'm going to buy a lip gloss.
So there was no barrier to entry.
And you had data to back it up.
And we had data.
Okay, but HEB, you're still having a hard time getting into these other retailers.
You know, HEB is great, but from what I understand, it's still going to take some work.
And HEB alone doesn't make your company profitable yet, right?
No.
No, okay.
And what were your, aside from just product, what were your other huge expenses?
Because you're not doing any marketing.
So what were your expenses?
So at this point, we now had our own office.
We were building somewhat of a staff.
I was still very involved in every element, but I was leveraging some people.
Now that my father's apparel business was changing a little bit, we brought on two or three people from that business.
And then we brought on someone right out of college, but she was great to help with some of the marketing and product stuff.
Probably some of the more experienced people were expensive.
Very expensive.
And did you guys ever think about like, you know, let's offer people equity for lower pay because it'll save us money?
No.
I mean, people needed to make money.
They needed to pay their rent and their equity really wasn't worth much because we didn't even know if we were going to have a business.
It wasn't the currency people were looking for at the time.
Right, right.
Didn't make sense to them.
I mean, of course, I'm sure they were kicking themselves later.
But OK, so.
So you're an HEB and still – and do you remember by that point, by the time you're an HEB and you see this phenomenon there, starting to feel like, OK, we're cooking now, or still sleepless nights?
Still sleepless nights.
There's a large hill to climb, A, to be profitable, and then B, to be successful.
So, like, how are we really going to get to the top of the mountain, so to speak?
What kept you up at night?
Failing.
Not being able to, you know, my father was still helping fund this.
We were narrowing the gap, maybe.
But like, how big can big be?
I'm selling dollar cosmetics.
Where do we go from here?
Where's Target?
Where's Walmart?
Where's Walgreens?
Where's the big guys?
Like, how do I, I'm competing with CoverGirl and Revlon and L'Oreal.
Like, these guys control the space.
When you're selling something for a dollar, you have to sell a lot of it for it to be a successful business, right?
You can't just rely on one regional chain of grocery stores.
Yeah, you have to be anywhere and everywhere.
And you have to constantly be shipping it in.
Because even if you set, like, our four-sided Spinarak held 954 pieces, but...
Once you sell 954 pieces, you have to send in another 954 pieces.
So there was a lot.
Like if a $10 item was needed to do $1,000 in sales, they were only need to sell 100 items.
We need to sell 900.
Yeah.
I mean, it's like a Slim Jim at the gas station.
I mean, the price difference wasn't that high anyway.
You got to sell a lot of Slim Jims.
Exactly.
And there's only four flavors of Slim Jims, right?
We have 67 items.
I remember.
In the early years, we were making money, and I told my father, like maybe a little later, but I said, okay, the company made money.
Where's my share?
And my father turned to me.
He goes, he left.
He's like, no, no, no.
You got to invest that back in.
You have to do it again, and then eventually you'll get there.
But that's kind of – that was my naivete.
Okay.
So I read about this story that happens in 2006.
I wonder if it was sort of strategically manufactured, but it was a rumor that came out about e.l.f.
that actually really ended up being an amazing boon for the company.
Tell me about this rumor, and were you involved with it?
Did you manufacture it?
So I always tell everyone, if I manufactured it, I would have done it over and over and over again.
So I definitely can't take credit for it.
But it was September 2006, and we had just come back from another industry trade show.
And I remember we were in a recap meeting with, we had a sales rep at the time who was there.
And we were all of a sudden the phone rang.
And outside of being the CEO of the company, I was also the receptionist and the customer service care rep.
So I answered the phone and she says, the woman says, is this Elf Cosmetics?
And I said, yes.
And she says, is it true?
I said, is what true?
She said, I just got an email that you're being bought by Bloomingdale's and that all your cosmetics are going up in price.
I said, I don't, news to me.
And then I checked the website and all of a sudden we see orders coming in by the...
tens and hundreds.
And it was, I think at one point through this viral spike, we were like the 80th most visited site on the internet.
Wait, where was this rumor coming from?
Where was it?
Where were people hearing it or seeing it?
It was just an email.
It was one of these, like, we have no idea where it started till today.
And everybody got it.
My target buyer got it.
My aunt in California got it.
My cousin, my...
Everyone you spoke to, till today, when I say Elf Cosmetics, they say, oh, I got an email that you were being bought by Bloomingdale's in 2006.
So this rumor comes out and it turns out that people panic and they're like, wow, the price is going to go up.
We better buy it while we can.
Yeah.
I mean, so we were getting about 300 orders a week at the time, depending on the virality.
We went from getting 300 orders a week to 18,000 orders a day.
for the next six weeks.
Okay, that's exciting.
But were you also a little bit worried that, oh, what if people actually think this is true?
The orders are going to drop off pretty soon.
So our excitement was great.
I mean, the orders were coming in rapid fire.
But we didn't have the inventory to support those orders.
We didn't have the process to reorder, to pick, to pack, to do anything.
So we didn't know where it was going to stabilize or what it was going to mean in the long term.
But right then, we were just drinking from a fire hose, and we were just trying to figure out, how do we get these orders to our customers?
How do we continue to build off this virality and find ways to take this to the next level?
So how did you fulfill those orders?
I mean, you know, could your—what did you do?
So I got on a plane, and I went to our factories in China.
I went with our agent.
And we had to figure it out.
I remember when I first got to China, our first or second night there, I called my father and I'm like, I don't know what to do.
Like, this is too much.
I can't do this.
And I remember I was on my BlackBerry in the elevator and he tells me, this is it.
You either figure this out or we pack up and go home.
Like, this is what you built.
This is what you wanted to do.
This is your opportunity.
When we come back in just a moment, a financial deal that finally lets Joey sleep at night and an ill-fated sale that wakes him right back up.
Stay with us.
I'm Guy Raz and you're listening to How I Built This.
Hey, welcome back to How I Built This.
I'm Guy Raz.
So it's the fall of 2006 and Joey is in China scrambling to fulfill an unexpected surge in orders.
We had to find a warehouse.
We had to make the goods.
We had to create a system to pick and pack the goods.
And all this was done on the fly as the order velocity was continuing.
And it took about six to eight weeks.
And we shipped 192,000 orders from China direct to customers in the U.S.
And then that year we were projected to do $2 million for the year.
After this spike, we did about $8 million.
We were profitable.
Wow.
And we never looked back.
Wow.
I mean, talk about trial by fire.
Okay, so you get through this, but now you've got real sales, right?
And I guess it's around this time where you managed to finally convince Target to let you in.
So actually, in 2008, I get a call from Target.
Now, we had a very small relationship with Target.
We were in the trial and travel section.
And the Target buyer said, what if Elf made us a holiday end cap program for our stores?
End cap at the end of an aisle, probably facing the registers, right?
Yeah.
I mean, this is, you know, when you walk into Target, they have what they call the racetrack.
This is on the end.
Like every cart is passing this thing.
This is the primo spot.
This is like the Park Avenue of Target.
This was like, pinch me, am I dreaming?
It was like the premier retailer.
First of all, Target was always like the retailer growing up because my father was doing business with them.
It was in line with our values.
It was perfect.
Now, this was November 2008 for holiday 2009.
So still 11 months away.
You don't ship till October for that.
But we were like, we are in.
Okay, you're in Target, but...
From what I understand, they actually want you to raise the price.
They don't want you to sell it for a dollar, which is interesting because most of the time when retailers, CPG retailers go to Target, they're urging them to lower the price or to offer coupons and, you know, especially around food, right?
A lot of times retailers are saying, hey, you got to cut off a dollar.
Here, they're urging you to increase the price.
And you guys were reluctant to do this?
So they wanted us to increase the price, but not of our everyday merchandise.
They appreciated the incrementality and impulsivity claims that we were making, but they still felt that we needed to continue to grow the price point.
So at the time, we're launching a small line called Elf Studio.
And basically, if we had a four-foot section in Target, Half of the section was a dollar and half of the section was now three dollars.
OK, was it the same product inside?
So yes and no.
The same quality of product was offered on both the Elf and Elf Studio.
However, often the Elf Studio was dual ended.
It also was bigger.
So if this was one ounce, this was one and a half or two ounces.
It had a little bit more pearlescence.
But for the most part.
We stood behind the quality of both the Elf and the Elf Studio line.
But it really sounds like it wasn't that different in terms of what you were offering.
But I mean, why would a customer think that?
Like, that's a question I would ask you at the time.
If I was on your team, I'd say, Joey, I don't know if people are going to buy this.
You know, they're used to us being a dollar.
One of my buyers told me a long time ago something that really stuck with me.
Price is what you pay and value is what you get.
And as long as we're committed to continuing to offer our customer extreme value, She doesn't want us to be stuck to the $1 price point.
Because if we could take a $35 item that they get at Prestige Retail and bring it down for $3, she wants that.
If it's a $12 lip gloss that we can bring for $1, she wants that.
But it just needs to continue to convey value.
Okay, so up until this point, your sales and target were for trial products.
Like you're going on vacation and you just buy a bunch of things.
How much of a game changer was it when Target says, OK, we want you to have the second tier in addition?
Was it a small bump or was it a significant bump?
The biggest win was our ability to compete on everything you do in the food and drug mass arena is sales per linear foot.
So if you're in a four foot section, they want to know how much volume, how many sales you're going to do per foot on that four foot basis.
So when Elf first launched in Target, they were forecasted to do $60 per linear foot per store per week.
Out of the gate, we were at $100 per store per week.
So we were already performing on par or better than expectations and a lot of the competitors.
And you were already D2C for six years at this point.
So now you're, I mean, this is the beginning of a D2C.
craze, right?
2010s.
Before we get into this, here's a question for you.
Not only do you weather the financial crisis of 2007 to 2009, and it continues really to 2012 when the market only fully recovers, there's always this story about financial crises or recessions, and it's lipstick is always used as an inelastic, like people will still spend money on lipstick because it's something people are comfortable spending money on, and it's kind of recession-proof, and people still want to look nice.
Was that true?
Did you see that happening in real time?
Not only did we see it happen in real time, it's what propelled our success because, like you said, in 2007 and 2008, During the financial crisis, it happened to be at the same time that Revlon launched a brand called Vital Radiance.
Now, you probably don't remember or ever heard of it.
I don't.
And L'Oreal launched a brand called Hip to compete with MAC.
And the major premise of both those brands was we are going to sell more expensive cosmetics in the drugstore arena.
We are going to compete with Sephora at Duane Reade at CVS.
Wow.
was an utter failure.
That failed miserably, quickly.
And that is really what opened the door for Elf Cosmetics to get shelf space at Target and really continue to become a brand that's thriving in the retailer space.
So even though so many businesses were struggling at that time, it was a combination of price point and the product.
People still bought cosmetics.
People still want to look good.
Yes, because if you're not going to go to the salon, you might as well find the next best thing.
It's so interesting.
Yeah.
All right.
I mean, you guys are growing and you're finally, you started this business, really launched in 2004.
Six years in, you got to be feeling like, okay, this is now we are cooking with gas here.
Do you remember roughly by the end of 2009, what you guys were doing in sales a year?
I remember at the end of 2010, we were doing about $30 million in sales.
Wow.
And we were able to do it a lot because of the mix of business between web and retail was a great mix for a growing business.
Because when you're operating on web business, you have a high margin business.
Sure.
And you have immediacy of cash.
So I'm not going to have to wait.
When I sell to Target or if I sell to retailers.
I buy the goods, ship the goods, then get paid 60 or 90 days later, as opposed to the internet business, I'm able to get paid right away.
So we're really able to grow from 10 to 20 to 30 million with very little additional debt or leverage.
Joey, how many hours were you working on this a week?
Like now we're getting into 2010.
Was it all consuming?
Yes.
I mean...
Again, I'm a Sabbath observer, so we work 24-6.
You stop working on sundown on Friday until sundown Saturday.
You don't answer your phone.
You don't, no calls with China.
You just stop.
Yes, we take a day off.
It's a great rest day, and it really, it gives time for family.
But other than that, if you're not sleeping, you're working.
Okay, so you get to a point where, you know, things are looking pretty good, 30 million a year.
I guess in around 2010, at some point, you get an unsolicited call from an investment banker saying, hey, we have a client interested in maybe making an offer.
I get a call.
It was January 2010.
And this woman calls me as a cold call.
And she's like, I see what you're doing.
And we'd love to kind of represent you and seek a sale process.
And who is she?
Her name is Vineto.
She was at a small boutique investment banking firm called Financo.
And she said, you know, this is what we do.
We'll take you to potential investors.
Then we'll narrow the field.
We'll ask for indications of interest.
And then we'll get some final offers and we'll see what we want to do.
And we'll start with a $25,000 retainer.
I said, this all sounds nice.
but I don't know you and I'm not giving you $25,000 on a hope that this is actually going to work out.
So she came back and she said, okay, we're going to waive the retainer, but we want to do this process with you.
We really like the company you're building.
And I remember we got a lot of private equity interest.
Okay, $30 million a year in sales.
So let's just say the valuation was 5, 6x.
Sounds about right, more or less at that time?
It was closer to 8 to 10x.
Okay, great.
So there's a number out there.
Are you comfortable saying what the valuation was in 2010 at that time?
The valuation of the company was probably, it was about $70 million.
Okay, $70 million.
So here's a question for you.
At $70 million valuation, why were you open to selling some or all of the business at that point?
The first reason was we had an opportunity to do something for the family, which was...
perhaps not generational wealth, but wealth for definitely more money than I've made in my life.
I was 29 years old.
I was able to put money away.
And if everything else fell apart, I would still have financial flexibility.
And the second reason was I didn't know what I didn't know.
Maybe L'Oreal and Revlon were working on the next thing to take me out in 30 seconds.
I had no idea.
And then the third thing was, really just like it's not what you know, it's who you know.
So I think being connected with these guys who are in this private equity world that are selling companies every day, they know the steps, they know the game plan to make you sale ready for the future.
Got it.
Okay, so you get bids and you end up accepting an offer from a private equity firm, TSG.
consumer partners, right?
Yes.
And they're going to take a minority share.
So 49%, you guys are still going to own a majority of the company and you're going to get a check.
You're going to get, you know, probably I'm assuming anywhere from seven to $15 million in the bank.
Correct.
More than that, but correct.
And explain how it works.
They basically buy a minority share, you get a check, and then do they also put more money into the business to grow it?
So there are situations like that, but because Elf didn't need their additional capital, so all the money, you know, a few things change.
You have things you can't do, so I can't sell the company without them.
I can't hire some crazy salary.
Like, there's a few guardrails, but for the most part, there was very little difference from the day before we closed to the day after we closed, except on the ownership structure, we now had a partner.
And now you had some money.
Yes.
That's when we started sleeping at night.
I understand that.
I mean, I think there are entrepreneurs who would say, I could see where this is going and I just turn this thing down.
Right.
But you're saying, hey, this can go the other way at any moment.
Like you had healthy paranoia.
Yeah.
Look, and I would have done a lot better if I did that in the long run.
If you didn't sell.
If I didn't sell.
But.
I don't regret what I did one minute of one day.
And I always say, Elf has had subsequent liquidation events over the last 10 years since then.
This was the smallest, by far the smallest, but it was the most impactful.
The stress of your life is now, it's much less.
You're not stressed on, are you going to make it?
You're excited about what the future is going to bring.
So not too long after that, maybe a year or so after that, Scott, who was involved in the beginning, he leaves.
And from what I've read, I mean, first of all, do you keep in touch with him?
Do you have any connection with Scott anymore?
So Scott left a little before that.
Scott left in 2008.
Scott came to us, my father and I, and we started another business called Borba, which was a nutraceutical beverage.
And the concept of the beverage.
was it's skincare through nutrition.
So basically you drank two of these a day and your skin was clearer.
And Scott found a partner for Borba and he took the Borba business.
They bought our steak out and they took it, that business, and then we stuck with the Elf business.
So it was a very amicable split.
Since then, Scott and I have lost touch.
I think the Borba business never really took off.
I believe Scott...
became a pastor at some point.
I don't know.
Yeah, he already became a priest, which is an amazing story.
Okay, so that was that.
And now you've got a private equity partner.
And it turns out that L'Oreal in 2013 approached you, you and your minority owner, to buy you out.
And you guys went deep in this negotiation.
Tell me about that.
offer that conversation.
So it was actually Revlon that reached out first.
And after I got a call from Revlon, I called my good friend, Vinette.
And I said, Vinette, what do I do?
So she goes, okay, you guys are still, you guys, it's a little early.
Normally these take a few more years, but you guys are killing it.
You're really doing so well so quickly, like let's run another process.
So we met now with more strategics who are interested.
And actually, L'Oreal came through with the best offer.
They offered us about $225 million for the whole company.
And we were very excited at that point.
And we were ready to sign.
And now this is lock, stock, and barrel.
We're selling the whole company.
We are done.
We did it.
12 years ago, we started.
We're ready.
We're getting our checks.
We're leaving.
And all of a sudden, Vinette calls.
And she said, L'Oreal's passing.
It wasn't happening.
You were going to get over $100 million, you and your dad, from that deal because you had 51%.
And was there any clause in the negotiation that if it fell apart, you'd get some money or no?
No, zero.
So you were just assuming that everything is, and you get a call that they're pulling out.
Why?
So at the same time that they pulled out of the Elf deal, they also bought a different company called Urban Decay.
Sure.
So I think they were trying to just play both sides.
or see what got them to the finish line.
They blamed it on the fact that they couldn't get comfortable with our supply chain and that we were so low cost and they weren't comfortable with it.
But I think that it was really because that they were focused on the Urban Decay deal.
Wow.
So they were really – we did Urban Decay on this show.
It found a fascinating story founded by Sandy Lerner, who also co-founded Cisco Systems.
It's a fascinating story.
So you're – It must be, it must have been crushed.
It was crushing in the moment, but in hindsight, it's such a blip on the radar of what it's become and how much money we subsequently have made through this that it was a blessing in disguise.
And in 2013, we regrouped and then we did a process and that's how we got TPG.
TPG comes in, this is a different company, right?
Different private equity.
And they come in.
to buy a majority stake from you and your dad, and they value the company at $265 million.
So they're going to buy a majority stake, which means that you guys are going to hold on to a sliver of the company.
So that was when we were selling to L'Oreal, we were selling 100% of the company.
When we met TPG, they're like, no, we really like what you bring to the table.
We want you guys to roll equity with us.
And we want you to stay on, stay involved and stay as equity holders.
And I remember when they finally gave us a firm offer and the offer was, we're going to buy a majority stake in the company and we're going to bring in a CEO to lead the company.
It was like a weight was lifted off of me.
And I'm like, wait, it's not going to be my problem anymore, but I'm still going to have equity and upside.
I just, it was like a freeing experience.
And they brought in the CEO, Tarang Amin.
He's still the CEO.
He's still the CEO.
He's delivered a lot of value for shareholders.
He took the company public in 2016.
It's amazing.
I mean, so you guys stayed on for about a year and a half, right, during the transition.
But really, it was – you were kind of winding out.
You were winding down your time.
And I'm assuming – By the time you finally, you actually left, you were done.
You were out, out, out.
Yes.
We worked with Terang and team for about a year and a half, a little bit more.
But it was probably the most impactful two years of my career because I call it my master's program.
Yeah.
Because I was able to learn how it's done on the other side.
How Clorox execs and P&G execs and like how they look at the business, how they structure teams.
It's a mixture.
It's a blend of the entrepreneurial spirit and the best in class work ethic that they do.
And I put it together.
Okay.
So you are out of the picture, but you now really have created wealth, like significant wealth for yourself.
And in a way that you can kind of just, I don't know.
do whatever you want.
You can invest money.
You can do nothing for a while.
And I guess for a while, you actually did not much.
But tell me about that period, because it sounds like you actually were not happy.
Yeah.
So my father and I officially left Elf in December 2015.
And I vividly recall one morning when my kids got up to go to school and I sat down on the couch and I started watching House of Cards.
And then a few hours later, my kids came home from school and I was still watching House of Cards.
And I'm like, I can't do this anymore.
And at that point, we were working on something else, but it was taking a long time.
But I knew that retirement life at 35 years old was not for me.
Yeah.
And probably not particularly, not a great example for your kids, right?
To be.
Yes, that's for sure.
And I think within a year, maybe less, you started a new company.
that you called Fit for Life.
And I guess I should explain it.
It's kind of a cool concept because I guess you basically partner with big brands like Reebok or Gaiam, which does yoga products and Fila.
And you basically get the licensing rights to sell products with their branding on them.
Yes.
The way we look at Fit for Life is anything that you see in a gym that's not a machine.
So any of the mats of the small weights of jump ropes.
weighted vests, all that.
Those are the things that we do.
And you manage the whole process of like manufacturing, distribution, sales?
Exactly.
So yes, we have relationships with retailers.
We sell to Target and Walmart and Amazon.
We are making the product, but they maintain the brand.
That's their job.
And our job is to operate the company and together with them create great products.
What a fascinating business.
I mean, and is it a good business?
It's a good business.
The fitness business is a good business, but it's not nearly as exciting as the beauty business.
Yeah, right.
Beauty business is trendy.
It's quick.
There's...
There's virality.
There's a lot of excitement.
There's a lot of M&A deal.
Like there's a lot going on.
The fitness business is, I'm sure you own a yoga mat.
When's the next time you buy your next yoga mat?
So the velocity is a lot slower and it's less exciting.
So which brings me to your next business, which makes sense because you get back into the cosmetics business, the beauty industry business.
You start another company as beauty, but this time you guys are.
acquiring brands.
Tell me a little bit about this business.
This is an interesting business.
So in late 2018, I get a call from my good friend, Vinette.
She's telling us about a portfolio of beauty brands that was owned by private equity to compete with some of the big guys.
It was not doing very well.
And they asked us to look at the business and to possibly buy the business.
Two months later, they were getting in worse situation and they were going to file for bankruptcy.
At that point, we looked at it again.
And the benefits to bankruptcy is that it kind of hits a reset.
So any bad contracts, any old monies owed and things like that all go away.
And you're able to start on a new slate and go forward from there.
And we now run a company called AS Beauty, which owns the assets and the company of Laura Geller Beauty, Julep.
And we closed on that deal in February 2019.
And it still has a following because people remember those brands.
Yes.
So when we bought the business, it was a downtrending business, but it was still a business.
And now we are growing the business very nicely, both online and on Amazon.
It's interesting because you think about big brands in the 80s, like Guess Jeans or...
Massimo and Fila is huge in Southeast Asia, I know, which was huge when I was a kid in the 80s and 90s.
But a lot of these brands that people in their sort of 40s, 50s, 60s will know, it's like owned by somebody else.
Maybe it's been sold multiple times, but still using the brand.
It's just an interesting business to me.
Yeah, I think when you look at the retail environment, there's so much clutter out there.
So any point of differentiation is valuable.
So when you have a brand like Guess or Fila that you've grown up with, like Reebok, you remember those pump up shoes from the 80s, right?
Of course, I have them.
So that's something that cuts through the clutter and allows you to stand out as well as gives the customer confidence that this is a brand and that there's something behind it.
So you've got, this is what you focus on.
Going back to e.l.f., it's amazing.
I mean, it could have.
You could have sold it, walked away, and we've done Beauty Counter.
We've done some other brands that once they sold, it went downhill.
The opposite happened with Elf.
It grew and grew and grew.
I think I just checked their market cap.
It's like $3.8 billion.
I mean, it's a big company.
It's doing really, really well.
I mean, do you think that...
that how you started this brand in 2002 and really launched in 2004, you could do this, you could recreate the playbook today?
I think when we created the brand in 2002 and three and four, our biggest obstacle was how are we going to get space in a retail environment controlled by four guys?
I think today, now it's how are you going to own the most amount of attention from the consumer on Instagram?
Snapchat and Meta.
So could I have done it today?
Probably.
Would it look different?
Definitely.
Do I have the tenacity and goal to do it again?
Probably not.
I wouldn't start a business at this point in my career.
I think buying a business is a much easier entry.
But I think if I was a young entrepreneur and I needed to cut through the clutter, a thousand percent, if you're creative and committed, you can find a way to do it.
Yeah.
Joey, when you think about this journey that you took, you know, of course, you had a lot of I mean, you know, you did have help from your dad.
There's nothing wrong with that.
But it's still it could have failed.
Right.
It could have it could have gone nowhere when certainly when the dollar stores didn't validate this idea.
And then you think about where you got to.
How much of that do you think had to do with just the grind you put in and how much do you think had to do with getting lucky at times?
So I think when you get lucky.
And when you have the desire to be successful, that's when you will be successful.
So I go back to that elevator story I gave you a little earlier, that when my father said, like, this is it, you either figure it out or you pack up and go home.
I didn't manufacture that Bloomingdale's email, but I could have tried to, but it doesn't mean I would have been successful.
You can't wait for luck and you can't manufacture opportunity.
But when that luck is there, You got to take advantage of it, come hell or high water.
That's Joey Shama, co-founder of Elf Cosmetics.
By the way, you know how we mentioned that Joey's former partner, Scott Vincent Borba, left the beauty business to join the priesthood?
Well, just a few weeks after Joey and I did this interview, Scott was, in fact, ordained as a Roman Catholic priest in the Diocese of Fresno, California.
When he left the world of business, Scott also left the trappings of his former life behind.
He said that he gave up his fancy house and car, his Gucci suits, and his 401k.
And as for his new life, Scott told the New York Times that he's looking forward to serving God and working with his parishioners.
Hey, thanks so much for listening to the show this week.
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This episode was produced by Carla Estevez with music composed by Ramtin Erablui.
It was edited by Neva Grant with research by Olivia Rockman.
Our audio engineer was Patrick Murray.
The production staff also includes Carrie Thompson, Alex Chung, Sam Paulson, Casey Herman, JC Howard, Chris Messini, Catherine Seifer, John Isabella, and Elaine Coates.
I'm Guy Raz, and you've been listening to How I Built This.