In 2022, founders Ju Rhyu of Hero Cosmetics and Michal Berski of Curlsmith sold their companies for $630 million and $150 million to Church & Dwight and Helen of Troy, respectively—and there’s already chatter that the two have moved on to their next beauty venture. “I head a rumor that we started a brand together,” Berski joked during a panel discussion Tuesday last week at Uplink Expo in Los Angeles.
To debunk any rumors, the pair aren’t getting into business together—at least not yet. Rhyu still leads Hero as CEO, and Berski is enjoying time off from brand management. However, both are dabbling in investing. Rhyu has backed companies as an angel investor and is transitioning to co-investing with venture capital and private equity firms. Berski is interested in funding emerging brands helmed by founders with killer instincts. He says, “I have a great experience in investing in brands that are led by first-generation immigrants, and if you are an athlete on top of that, you have my money.”
Ahead, we spotlight key pieces of advice Berski and Rhyu doled out at their panel discussion moderated by Beauty Independent editor-in-chief Rachel Brown.
Have An Exit Plan From Day One
For founders with a brand exit as their goal, Berski and Rhyu, who launched Hero in 2017 with co-founders and siblings Dwight and Andrew Lee, recommend hashing out a possible exit plan at the onset. At Hero, the co-founders benchmarked $100 million as the revenue mark to hit before they would consider an exit. When Hero approached that figure in 2021, they began having conversations with board members about a sale.
Rhyu says, “We all knew at some point we would sell the company because I’m not related to them [my co-founders], so it wouldn’t make sense for it to be a family business that we would pass down for example.”
Berski gave himself a five-year deadline for selling Curlsmith and ended up selling the brand four years after it launched in 2018. “Don’t think about the exit everyday, but you should have it on your agenda, and there are a few things you have to re-engineer if you want to make your exit a smooth process,” he says, noting spot-on retail prices, cost of goods and gross margins are items to have on that agenda.
After Curlsmith’s deal with Helen of Troy, Berski was intent on leaving the brand. In the case of a founder interested in departing post-sale, he suggests a strong C-suite, including a CEO, president, CFO and CMO, is crucial. About a year prior to the deal, Berski essentially made sure that Curlsmith could run without him.
“You have to make yourself redundant, so that’s what I did,” he says. “That’s what allowed me to really close one chapter and open a new chapter the next day.”
Start Hiring Employees Early On
Elaborating further on building a team, Berski shares that, if he were to have a Curlsmith do-over, he would’ve begun hiring people sooner. He brought on his first employee two and a half years into running the brand. In general, he point out that a rule of thumb for beauty brands is “you should have one employee per $1 million in revenue.” By the time Curlsmith reached $50 million in revenue, it only had eight employees on staff.
As brands start to build their team, Berski counsels them to bring on “mid-level people who can do it all” and emphasizes that it’s great to pluck them from startups rather than big corporations. People from startups have experience being flexible in a budding organization that requires them to handle a variety of tasks. Berski says, “Don’t go after people from L’Oréal or Unilever straightaway.”
Rhyu agrees that a strong leadership bench is important for securing an exit. Hero hired a VP of marketing, VP of sales and VP of finance in advance of its exit. In the sale process, they pitched Hero to bidders along with Rhyu. She says, “It gave buyers a lot more confidence that the business could continue because the standing team and infrastructure was solid.”
“You should have one employee per $1 million in revenue.”
Be Strategic About Spending Money
Berski estimates he developed Curlsmith with $50,000 and spent $49,000 of it on inventory. The remaining $1,000 went to marketing. He paid five influencers $200 each, and they ended up leading to $20,000 in sales for Curlsmith. He took those returns and funneled them into 50 additional social media influencers. Berski says, “I was just reinvesting and reinvesting, and this is how we grew the brand without much external investment and made it actually profitable.”
While founders today often raise $300,000 or more from friends and family to support their brands’ launch, Berski didn’t have that luxury. “I’m not coming from money,” he says. “I don’t know any rich people, so my only choice was to just graft and hustle.”
Hero’s co-founders poured $50,000 into launching the brand and focused on Amazon as their main distribution channel at the outset. “It happened to be very profitable, so we took that money, and we used it to order more inventory and maybe hire one employee, and then we launched a little bit into retail,” says Rhyu. “I think just having that mindset of we have to be profitable, we need to make money because it’s the only way we’re going to survive really dictated our strategy.”
When Hero was short on cash later, its co-founders provided it personal loans and obtained line of credit with a bank to float it. Rhyu emphasizes, “There are other ways of financing the business that aren’t always raising money and diluting yourself.”
Hero received a minority growth investment from Aria Growth Partners in 2021, but not because it needed money. Instead, it was in need of help professionalizing and scaling. “We had this objective of, when we want to sell this company, what do we do? How do we get there?” says Rhyu. “So, when we were talking to investors, it was always through that lens of who has done it before, and who do we think can actually help us get to that next level?”
Have PRODUCTS AND IP Nailed Down
While sales and the price tag are often flashy elements of an exit, Rhyu stresses “what can kill your deal is the boring stuff…not having your IP locked up, specific contracts, your opps and supply chain. The boring stuff matters.” The bidding companies she met with during Hero’s deal process scrutinized its products and procedures, even sending people on a last-minute trip to South Korea to see exactly how products were made.
“Definitely do not underestimate the importance of formula IP,” says Rhyu. “It’s tricky because when you’re a smaller brand, you depend so much on the supplier partner to do the testing and the stability testing, the quality testing, which is fine, but that means you rely on that partner a lot more so that relationship will get scrutinized.”
Having a good relationship with vendors is critical. “Your contract manufacturer, the guys who actually make your products, I think these are probably the guys you want to be the closest to,” says Berski, highlighting that owning intellectual property across the board, from labels to the content that influencers create, is vital for brands. “You need to have all of your contracts in place,” he says. “Just have your house in order way before you started scoring the exit.”
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