What Can Beauty Entrepreneurs Learn From Drunk Elephant’s Big Exit? Investors Share Their Thoughts

Last week, news broke that Shiseido is acquiring Drunk Elephant for $845 million. In light of the news, in this edition of Beauty Independent’s ongoing series posing questions about beauty entrepreneurship, we ask 12 investors and investment bankers: What lessons can beauty startup founders draw from Drunk Elephant’s exit?

Ben Fenton Partner, BFG Partners

In a 2017 Forbes article I read, Drunk Elephant founder Tiffany Masterson was quoted as saying, “I stay close to home and stay in my lane. I do what I need. I’m a consumer first." She really addressed the needs of her consumer and stayed in her lane. It seems like simple and obvious advice, but it’s really critical for an emerging and fast-growing brand. There’s often an appeal to chasing shiny objects, but you should stay clearly focused on your consumer. The real takeaway is that you should concentrate on what’s working, your differentiation and advantage, and what your consumers want and resonate with.

Jaime Schmidt Creator, Co-Founder and Co-Owner, Schmidt's, Supermaker and Color

Founders and indie brands should remain focused on innovation and branding that is designed for young audiences. The Drunk Elephant acquisition is another indicator that big beauty is becoming increasingly reliant upon acquisitions as a primary means of bolstering sales among gen Z and millennials. It is effective strategy and a clear sign that consumer preferences have shifted to clean, healthier options. Shiseido’s move in particular highlights the movement on a broader, more global scale.

Rob Rosenberg Partner, Prolog

There are many interesting lessons that beauty entrepreneurs can draw from Drunk Elephant’s announced sale. Probably the most important lesson is the obvious one that growth sells the company. Sure, who backed you and who banked you can help you sell your company, but growth is what the buyer buys. Buyers are roaming the market with Geiger counters. They are tuned to growth, and they start tapping like a snare drum roll when they find a brand that is getting close to $100 million in sales.

All the other important lessons are subsidiary to that one: They relate to how you achieve growth. For example, Drunk Elephant’s success in Sephora shows that brick-and-mortar still matters big time. There is a stage in most beauty companies’ growth where they have figured out their brand and their communication to their target market segment, and brick-and-mortar retailers are there to help you scale (if you can develop the skills needed to work with them that you hadn’t needed to develop earlier in your company’s journey). They are afterburners for a jet engine. If you are pointed in the right direction, hit the afterburner. Not much good is likely to happen if you touch that button before your brand is pointed the right way.

Melissa Baker Co-Founder and CEO, Fenwick Brands

The success of Drunk Elephant was rooted in Tiffany being principled early, [and] innately understanding her consumer and the unmet need in the category. She created an approachable, yet aspirational brand position between efficacy and nontoxic with clear benefit statements, and was disciplined in how she built a distribution model to support cult followers. As we journey with founders, we share the same discipline in brand building. Listen to your intuition, communicate clearly and passionately, and stay true to your brand tenets.

Richard Gersten Partner, Tengram Capital Partners

Drunk maintained narrow and productive distribution. It did not open too many countries or wholesale partners too quickly and maximized [the] footprint it was in.

Elizabeth Edwards General Partner, H Venture Partners

Tiffany Masterson set out to be different, and that's what entrepreneurs today should be focusing on.  She created a differentiated brand and an easy-to-understand system. It's important to note that the things that worked yesterday don't always work today or tomorrow. She also launched at a different time. Drunk Elephant really gained traction on Instagram, but the cost of Instagram ads has tripled or quadrupled since she launched, so it's important to think about what the new platforms—digital, retail, and beyond—are going to drive the next wave of brands.

Barbara Paldus Managing Partner, Sekhmet Ventures

Tiffany Masterson should be congratulated on having set an amazing precedent for any entrepreneur in skincare. She displayed all the classic characteristics of highly successful entrepreneurs: passion, perseverance, vision, and an uncanny ability to build a cult following. She was also one of the pioneers of clean beauty, staking out a clear position on ingredients early on in the market, and driving consumers to understand that they have alternative solutions. She leveraged celebrity endorsements like from Drew Barrymore and later on took strategic capital from investors such as Man Repeller’s Leandra Medine who would help her brand grow to the next level. Finally, she could see the industry crowding up in the last few years and smartly exited at maximum value.

Today, the clean beauty space is far more complicated and crowded for new entrants. Over the last several years, hundreds of brands have entered the space. Today’s entrepreneurs will need to show the same resilience and patience, if not more.

Chris Hobson President and CEO, Rare Beauty Brands

Here are four key takeaways from Drunk Elephant's rise and exit:

1. Packaging matters. A lot. They did a great job making stock packaging look fresh and new.

2. Sephora matters. A lot. One retailer has the ability to make or break an indie brand. Enough said.

3. Clean matters, but so does science. Great combination of a "no no" list and a "yes" mentality.

4. Profitability matters. A lot. Rumor has it that the "crazy" revenue multiple is justified by a very high level of profitability only achievable with good unit economics, scale and efficient customer acquisition.

Kim Ryan VP of Brand and Product Strategy, New World Natural Brands

It’s inspiring what Drunk Elephant has accomplished. They are an indie brand that has had a strong point of view from day one appealing to the clean consumer with strong, unique branding, influencer support and a true retail partnership with Sephora. It’s a reminder of what can be accomplished as an indie brand. Our New World team immediately started a thread of emails when the acquisition was finalized, sharing thoughts on what worked for them and their valuation. At New World, we believe aligning your brand with the right parent company is key to propelling to the next level, and that is exactly what Drunk Elephant did.

Ashleigh Barker Director, Michael Dyens & Co.

Drunk Elephant set itself apart from the very beginning with a consistent brand message that was open, honest and educational around their ingredient story, something that clearly resonated with consumers and created a very loyal following, which is hard to come by in the ever-growing landscape of beauty brands. This is what ultimately led investors and buyers to take notice very early on. The early support from Sephora also helped to accelerate Drunk Elephant’s growth, driving further awareness and credibility behind the brand, which was validated by products that actually worked.

Unfortunately, there’s no cookie-cutter guide indie founders can follow that will guarantee the same successful outcome. Drunk Elephant has many notable attributes and points of differentiation that continue to play a role in its ongoing success: efficacious formulas, eye-catching packaging perfect for a #shelfie, not to mention a founder consumers actively engage with. For new brand founders, the key is to be authentic, have a unique point of view on what makes your brand different from others in a market where clean is now the standard, and get in front of those key stakeholders that will help position the brand for discovery and customer acquisition.

Luc-Henry Rousselle Managing Director, William Hood & Co.

This transaction highlights that skincare and brands resonating with millennials and gen Z are very attractive to strategic buyers at the moment.

Toni Ko Founder, Bespoke Beauty Brands and NYX

What an incredible story. Continued triumph from the beauty industry. What resonated the most from her [Tiffany Masterson's] comments is when she said that she stays in her lane. I completely resonate with this because, during my NYX years, I was always asked who my competitors were, which I never had an answer for because I never thought I was competing with anyone. I just did my stuff and never thought about what others were doing. I think that’s staying in my lane.

If you have a question about beauty entrepreneurship you’d like Beauty Independent to ask, please send it to editor@beautyindependent.com.