When entrepreneur Gregg Renfrew set out to take on the traditional cosmetics industry by founding a company specializing in nontoxic beauty-care products, the biggest challenges didn't come from her competitors in the $80 billion global industry. Surprisingly, they emanated from within her fledgling venture just as it was about to take flight.
This begins a three-part series following Renfrew through the most difficult moments of the launch of her company. H. Irving Grousbeck and Sara Rosenthal first recounted Renfrew's journey in a 2012 case study. What follows are extensive excerpts from the case, first published by Stanford GSB's Center for Entrepreneurial Studies.
We hope the experiences of this serial entrepreneur will prompt discussions and feedback from you, just as they spark students to consider what they would do if they were in Renfrew's shoes. At the end, we include questions we hope you will answer on our Facebook page or by sending your responses to us at the email address listed. Some of the names and details have been fictionalized, but this is a story of real business leaders facing real start-up dilemmas.
From the cleaning business she started on Nantucket island in college to the bridesmaid dress company she launched after graduation, Gregg Renfrew had had entrepreneurial aspirations for as long as she could remember. Therefore, in 1997, when she identified an opportunity to buy The Wedding List, a U.K.-based wedding registry service, she went for it. Renfrew licensed the idea from its founder, Nicole Hindmarch, with a vision to enhance and build out the personalized registry service via an online wedding registry, expanded product showrooms, and a radically more user-friendly experience than what was currently available. Though the company achieved early success, the dot-com bust in 2001 created financing challenges, and Renfrew was forced to sell her company to Martha Stewart Omnimedia, where she served on the executive management team for the next nine months.
Upon leaving her job at Martha Stewart at the end of 2001, Renfrew felt ready to launch yet another venture, this time her own retail consulting practice where she would work directly with some of the biggest retail brands in the country to help shape their customer-facing identities. She subsequently led or advised brand, marketing, and merchandising engagements for J. Crew, Bergdorf Goodman and Intermix, among others. In 2006, she was recruited to the position of CEO of Best & Co., a well-known children's retail group, to help revive the traditional brand and develop its multichannel distribution strategy. In March 2008, she left Best Co. and moved to Los Angeles, where she resumed her retail consulting practice, through which she was connected with Jessica Alba, the Hollywood actress.
Alba was interested in launching an organic baby-apparel company, and she hired Renfrew to develop the business model and market strategy. Renfrew had recently gained in-depth knowledge of the nontoxic (i.e., free of known carcinogens, mutagens, and other harmful chemicals) goods space and had begun to make significant changes in her personal life based on what she had learned. As she and Alba worked together, they expanded the original concept beyond organic to a full line of nontoxic baby products that would ultimately become known as The Honest Company. This work affirmed Renfrew's personal passion and ignited a professional commitment to bring safer, healthier high-quality products to market.
As Renfrew surveyed the space in the fall of 2010, she saw several areas, including food, apparel, and cleaning products, with well-established brands and significant shelf space represented by nontoxic products. In contrast, beauty and personal care, an almost $80 billion global industry, appeared to be largely overlooked. A handful of companies such as Burt's Bees, Tata Harper, and Alba Botanica were beginning to make names for themselves, but very few were going after the more sophisticated, high-end corner of the market. Renfrew began to articulate her vision for a company whose products were "chic like Chanel, safe for your body, and performed like a traditional brand."
She also began to explore the various distribution channels through which she could sell. One day over lunch, a friend suggested she look into the direct selling model, and after an afternoon's worth of research, Renfrew knew she had landed on exactly the right sales channel. As she explained, "This story — the story of healthier products and how important they are — needs to be told person to person. This is a story told between friends. On top of it, direct selling provides economic opportunities and enables the empowerment of women. It is perfect for beauty products."
Renfrew immediately called her friend Bryan Wolf, a lawyer at one of Los Angeles' largest entertainment firms, who had first become intrigued by Renfrew's desire to build her brand, in part by leveraging celebrity and media channels. The two had already committed to working together, and Renfrew was excited to share her revelation with him. As it turned out, Wolf had also long been compelled by direct sales and agreed that it was the perfect fit for their new venture. Within days, Wolf had pledged to contribute up to $200,000 to fund the early stages of the startup, and further committed to spend 40 to 60 percent of his time helping manage the new company. Renfrew and Wolf would share 50/50 in the voting rights and ownership stake, with both diluting their shares equally as new investors came on board.
Renfrew and Wolf were able to corral another $1.8 million over the next several months by pooling capital from friends and family ranging from $25,000 to $350,000, while maintaining a controlling ownership share in the company. The partners also assembled a five-person board of directors, with voting rights distributed evenly among the members.
What hurdles will Renfrew face as she tries to break into the $80 billion beauty-products industry? What marketing tactics will persuade women to drop their current beauty products and trust their skin to a newcomer, offering a safer but expensive alternative? Is there room on the playing field for this startup? What do you think of Renfrew's choice of a business model? Tell us your thoughts on Facebook using #StanfordGSBCaseStudy or email us.
Like many entrepreneurs, Renfrew turned to a network of trusted and talented friends and former colleagues to take her venture out of the gate. But will her loyalty to them derail her dream of providing women with safer skin-care products?
H. Irving Grousbeck is the MBA Class of 1980 Consulting Professor of Management at Stanford GSB and was a cofounder of its Center for Entrepreneurial Studies, where Sara Rosenthal is a case writer.