#62. Taste Beauty is a manufacturing company working at the forefront of the quickly evolving beauty industry. We talk with Co-Founder Alex Fogelson about how his company is bringing trend-driven products to more than 50,000 beauty retailers worldwide, including Walmart and Sephora, in addition to powering the product licenses for major food and entertainment companies. The Loose Threads Podcast features in-depth discussions with leaders across the rapidly changing consumer economy.

Check out the full transcript below.

Richie: [00:00:06] Welcome to the 62nd episode of the Loose Threads Podcast, a show about the rapidly changing consumer economy. This episode is brought to you by Loose Threads Membership, which gives you actionable analysis, insights into events that drive growth and Loose Threads Espresso, your energizing and high-pressure filter for consumer news—in context. We also have a newsletter that features the latest open letters to CEOs, podcasts with industry leaders and news from Loose Threads. Check it all out at LooseThreads.com.

Richie: [00:00:35] Joining me today is Alex Fogelson, a co-founder of Taste Beauty, a manufacturing company working at the forefront of the quickly evolving beauty industry. Alex and his company bring trend-driven products to over 50,000 beauty retailers worldwide, including Walmart and Sephora, in addition to powering the product licenses for major food and entertainment companies.

Alex: [00:00:52] 3D printing was becoming much more accessible in this world and manufacturing of components and we saw an opportunity that we could innovate much more quickly if we leveraged some of these new technologies and went back to the drawing board.

Richie: [00:01:03] Now Taste is working with other emerging brands such as BuzzFeed to release in-the-moment products that go viral. Here is my talk with Alex Fogelson.

Richie: [00:01:15] Why don’t we start. Just talk a bit about your background and then we can work our way up to Taste Beauty existing.

Alex: [00:01:20] I’m from Westchester, New York, about 45 minutes north of the city. Grew up in a really entrepreneurial household. My mom owned the local toy and candy store in my hometown in Chappaqua. My dad was in the accessories business for a long time, had a long career and then, in 2001, started a cosmetics company called Lotta Luv. It kind of brings me to where I am today. I was always doing little, random, entrepreneurial projects as a kid, just kind of fooling around, but I always had a vision of doing something, starting my own thing from a really young age. Dinner table conversations were like entrepreneurial war stories of an only child. That’s kind of how I was brought up so it’s a cool background.

Alex: [00:02:02] When I was in college—I went to Tulane in New Orleans—while I was in college, I had this idea for a men’s lip balm. I was looking around, myself and all my friends were using lip balm, but they were really using products that are marketed towards women—you know, Burt’s Bees, Carmex, Blistex, Chapstick. These are all great brands but they’re not really for guys. And this was at the time—it was like 2010—when Axe was really blowing up and Dove Men and all these big men’s grooming brands were coming up. We were like, “Why isn’t there great lip balm for men?” Obviously, having the background in the cosmetics business, my dad was extremely helpful.

Richie: [00:02:37] And why wasn’t there a men’s lip balm?

Alex: [00:02:39] Honestly, I don’t know. The industry was dominated by a few big players, like Carmex and Chapstick. Chapstick’s owned by Pfizer and these are owned by big companies that have a lot of power in retail. And the lip balm category is sort of an impulse and cough-cold category, from a retail standpoint, which are pretty niche categories in the retail world. Within the channels that lip balm is sold, I think a lot of the consumers are women purchasing for men. So, I think, we saw an opportunity that—why isn’t there this product? There’s a market need for it. Why isn’t it existing?

Alex: [00:03:12] So we came up with a name, which was Chapfix, which is just a really fun name, Chapfix, plus we designed this really cool component—I work with this great designer—it lays flat in your pocket. It had an angled cap so it slid in your pocket easily, had grips on the side. We made all these great YouTube videos. It was really fun. And I was doing this remotely, pretty much, and working in summers. We were kind of selling it a little bit direct-to-consumer online. We were selling in small salons. I was hustling, figuring out places that would take a risk on a one-off product that was just kind of cool. We were giving out free product, sampling, the whole thing.

Alex: [00:03:45] Then we had an unbelievably lucky break. My dad was at a meeting at Walmart and he was meeting with the buyer for the checklane department at the front end of the store.

Richie: [00:03:56] So they have a buyer specifically for the checkout?

Alex: [00:03:58] The checkout area, yeah. It’s a really competitive category. There was a new buyer. He was young. He was a guy. And my dad has this meeting and at the end of the meeting he says, “Hey, my son invented this lip balm. That’s not what I’m here for but I just wanted to show it to you. It’s pretty cool.” And the guy freaks out. He says, “We’re doing this.” So, from that point, I was going to Bentonville for meetings and it was this whole thing. It was an amazing experience.

Richie: [00:04:21] How old were you?

Alex: [00:04:23] Twenty-one.

Richie: [00:04:25] Crazy.

Alex: [00:04:25] It was pretty cool. So, got it in. It was 4,000 stores, full distribution at Walmart. Unbelievable. And the interesting thing about the checklane is that there’s multiple checkouts per store so there could be—it’s 4000 stores times the number of checkouts. It’s a low price point but it was it was fun. It was really fun. And then, shortly thereafter, my father’s company was acquired by a large global consumer products company. We went along with the acquisition. The team came along. Shortly after, my father exited the business and myself and some of the key team members stayed on. We were there for a few years and then myself, the head of sales and the head of design kind of looked at each other and were like, “Guys, we could go off on our own and do this way better.” And we had all these cool ideas of how we could shake up the category, shake up the industry in the broader beauty world. Lip balm was a core focus for us but other categories like lip gloss, nail polish, bath and body products were of interest as well. So that’s when we left and started Taste Beauty and the rest is history.

Richie: [00:05:26] I’m curious—you started in the beauty world with an almost rare product that actually is for men.

Alex: [00:05:31] Sure.

Richie: [00:05:32] And then most of the other stuff, it sounds like, you are not the customer.

Alex: [00:05:34] Correct.

Richie: [00:05:35] What was that like? Was that a learning curve? How did that all work?

Alex: [00:05:38] I mean, it’s funny because, having grown up around it, I sort of had familiarity with a lot of the players in the space. I learned a lot from my dad and I was always around it. I was always kind of obsessed with product and cool gadgets and coming up with random ideas and had an affinity for branding. And a lot of the product was licensed, like I mentioned. So we had Hershey flavored lip balm, which has an incredibly broad reach and demographic. I saw the power of brands and I saw the power of licensing and the power of how great brands can have affinity across a wide age range. These are flavors and brands that are iconic and evergreen and it’s a steady business with good upside.

Richie: [00:06:14] So what was the original incarnation of Taste? Or how did it start?

Alex: [00:06:20] We kind of saw this opportunity that we could be really nimble, really quick to market and we saw the power of 3D printing was a big thing for us. Within the novelty beauty world, a lot is driven by componentry. So we’re all about custom components, custom packaging. And we saw 3D printing was becoming much more accessible in this world and in manufacturing of components. And what that does is it allows you to get a sample made much more quickly than you would making a traditional cast and mold which can take eight weeks, whereas a 3D print, you could get in under a week once you get it designed and all that. That sort of changes the game.

Alex: [00:06:56] And we saw an opportunity that we could move much more quickly and innovate much more quickly if we leveraged some of these new technologies and went back to the drawing board and said, “How could we do this better? What are the changes we would make? And what are the things we would do in a 2015 world?” which is when we started the company. That’s sort of how we started the foundation and it evolved from there.

Richie: [00:07:15] Were some of the other bigger companies using those technologies?

Alex: [00:07:19] Some of the bigger companies, I mean, they work more slowly. And a lot of them are relying on third-party component manufacturers. So the large cosmetic companies are mostly dealing with stock components from catalogs that the true component manufacturers are making, whereas we do just about everything custom unless it’s just a basic tube of lip balm or a lip gloss wand or things like that that are pretty standard.

Richie: [00:07:41] So it sounds like it’s a very distributed supply chain then and there are layers upon layers of—

Alex: [00:07:46] There are layers and we’re fortunate that we work very closely with an agent in Asia that oversees a lot of our manufacturing and the whole supply chain from a compliance standpoint—testing, quality control. We do some product in the U.S. as well but, from a componentry standpoint, it’s pretty much generally done in Asia.

Richie: [00:08:03] Gotcha.

Alex: [00:08:04] Just sort of how the business works.

Richie: [00:08:05] So, in 2015, you had a team, which is a lot farther than a lot of people start with. But where’d you start? What were the first things you worked on? Who did you want to go after? How’d it all come together?

Alex: [00:08:16] Sure. We’re called Taste Beauty. We’re kind of also based on flavor, similar to what Lotta Luv was, but it has evolved beyond that. But that’s sort of where we started. So there were certain brands that we knew we had great relationships with that would be willing to do a licensing deal with us. And we also did some of our own flavored, generic Taste Beauty branded product. We had known that bacon-flavored lip balm sells really well. Bacon was super hot at that time and it still is, I think. And so our first product was a bacon lip balm. And so we started with, what we’d call, low-hanging fruit—the things that we knew we could get some traction [on]. And we kept developing, developing, developing and then we got some traction in the market. Other brands started hearing about what we were doing, interested in working with us and it kind of snowballed.

Richie: [00:09:00] Walk us through—how do those licensing deals get done and what does it take to get one of those deals done?

Alex: [00:09:04] Sure, sure.

Richie: [00:09:05] I feel like everyone either does not live in that world or they only live in that world.

Alex: [00:09:09] Yeah, totally. A lot of them are done directly with the brand owners themselves and a lot of them are done through agents. So Disney, for example, we work with now, which is obviously an incredible company. They work directly with us. So they don’t have an agent. They have a whole licensing division that works on all their consumer products’ licensing. But then other brands, like Nestle or Tootsie Roll in the candy world and Pepsi, work with great agents that sort of manage all of their licensing partnerships—and this is categories from t-shirts to bedding to watches. Everything you can think of, there’s a niche for at retail and brands are just what drives a lot of consumer interest and resonance.

Richie: [00:09:49] I’m curious to talk more about that because I think—so we’re seeing a lot right now that, in the celebrity space, a lot of celebrities that would traditionally do a license or a collaboration are trying to just start their own brands, such as Kylie or, effectively, the whole Kardashian family. And then some others—Rihanna and so forth—are starting to say, “Okay, why am I getting 3 or 4%? Why don’t I get 94% or 90%?”

Alex: [00:10:09] Sure.

Richie: [00:10:10] And that’s inverting. But it sounds like licensing is still very strong in a number of other places.

Alex: [00:10:15] It’s an interesting debate because there are two sides of the coin. Doing a licensing deal for the brand owner, there’s a lot fewer headaches that they have to deal with. They’re just basically getting a check every quarter.

Richie: [00:10:24] Right.

Alex: [00:10:24] Which is nice for them. They can have whatever level of involvement they want, based on their contract terms and whatnot but, generally, if a royalty rate is anywhere between, let’s call it 6 and 14%, depending on the deal—that could be what they’re left with, at the end of the day, if they went on their own.

Richie: [00:10:42] Right, if they did everything. That was their margin anyway.

Alex: [00:10:43] Right. Exactly. That would be their net margin anyway and there’d be ten times the headaches so we kind of take those on. And then, from a liability, quality control, relationship standpoint, there are huge advantages.

Richie: [00:10:55] What about the global part of it? Because, from my cursory understanding of this, licensing is somewhat territorial.

Alex: [00:11:00] It is.

Richie: [00:11:00] Right. But internet, all of these things, there’s trade everywhere now. How has that part changed, if it affects you at all?

Alex: [00:11:06] Yeah. So there are some agents that represent brands globally. Actually, the cosmetics category is interesting in that there are different regulations throughout the world for what ingredients can go into products. The EU is particularly stringent. Asia is particularly stringent. And the U.S. has its own set of regulations as well. That makes this specific category challenging on a global standpoint. Having said that, we are able to do it and we have done it but it makes it harder to just kind of plug and play with a brand, globally.

Richie: [00:11:33] Right. How much time do you spend with lawyers and compliance stuff?

Alex: [00:11:37] Not that much.

Richie: [00:11:38] Really?

Alex: [00:11:38] Yeah. It comes into play in every product we make but once it’s all squared away then we can move on from there.

Richie: [00:11:44] Okay. So you started with bacon lip balm. And then where’d it go from there?

Alex: [00:11:49] Since then, we have really strongly diversified the business, in a number of ways, and we just announced a really interesting new structure to the business which we’re really excited about. What we’re doing is we’re sort of dividing the business into three silos—like the bacon lip balms I mentioned are under our Taste Beauty brand. So we are, basically, establishing Taste Beauty as a brand in the teen and tween cosmetics space. The teen and tween world is where we play the most. It’s our sweet spot. It’s a niche market but it has a lot of resonance from an affinity standpoint in the beauty space.

Alex: [00:12:24] Everything that we do, within the Taste Beauty brand, is fun, pop culture-inspired, makes you smile. We trademarked the phrase “smiles you can taste.” Everything is Instagramable, sharable. And that’s a big thing for us, is our social media shareability. Everything we make is worth talking to your friends about, worth sharing. And that really substitutes for a lot of the traditional marketing that we could be doing. We will be doing some over the course of 2018 but it is a lot of word-of-mouth, impulse purchase and things that are just fun and quirky.

Richie: [00:12:52] So that’s one part.

Alex: [00:12:53] That’s one part. The second part is what we call Taste & Friends. So that’s all of our licensing partnerships that are with brands like Disney and Nickelodeon and Mattel and Nestle and Tootsie Roll and General Mills cereal brands. We have these amazing portfolio of really iconic, great brands, both in the character licensing role and then in the food and beverage space—Pepsi, things like that—that are just really, really interesting.

Richie: [00:13:17] Gotcha. And then is there a third?

Alex: [00:13:19] So then the third is kind of the most interesting and the most exciting. It’s called Taste Labs. If we kind of look at where we think retail is heading and where the market is going, it’s really all about exclusivity. It’s really all about really nimble innovation and being able to work really fast with retail partners, as well as ecommerce. So we’re currently in 50,000 doors nationwide and worldwide which is really exciting.

Richie: [00:13:42] Wow.

Alex: [00:13:42] So it really gives us this incredible platform to partner with both media companies, lifestyle brands and ecommerce companies, to really put together amazing collections of beauty products that are totally exclusive for whatever specific channel we’re working in. And there’s this incredible convergence of media and retail, which I know you’ve talked a lot about, and we see that as a major opportunity going forward for our business because we do have these relationships, both in the retail community and the sourcing world, and we’re able to make things happen really fast.

Alex: [00:14:11] [We] did a really fun project this past summer with BuzzFeed where we did a fidget spinner lip gloss, which was really fun, called Glamspin. It got a ton of press. It was awesome, did really well. It was a fun project. We have some unique sourcing capabilities in the hair accessories world. So we went to JCPenney, [which] has the InStyle-branded salon, and we did a collection of hair accessories that are exclusive to JCPenney’s salons. The retailer Hot Topic—we do their collection of Blackheart beauty products, which is also a very niche market, but they’re actually doing really well. We work with Sephora. We’ve done a number of really fun collaborations with them on 3D-printed lip balm components. We did a Felicia the Flamingo. It was a flamingo pool float lip balm which came in a little beach bag we did this summer. It blew out. And then, this past holiday, we did Frenchie the Bulldog which was a bulldog in a snow globe which was really fun.

Alex: [00:15:01] It kind of gives us this platform to do really interesting things that most companies in the space wouldn’t traditionally take risks on. We see opportunities, both on the media side, the retail side and also the inventor side, really. People coming to us with crazy ideas that we’re willing to assess, cut them in on the deal and then figure out a way to take it to market. There aren’t really many companies that are able to provide that service to a lot of these brands.

Richie: [00:15:24] So I’ll start backwards and we can work toward the front of it. On that last point, I feel like there’s a general perception that supply chains everywhere, anyone can figure out how to make something in China and get it to customers. There has been some sort of flattening of that process. It sounds like though, to you, that your ability to push that really far forward, from a expertise, speed, know-how perspective is still quote unquote very defensible and/or the advantage that people are coming to you with. Talk a bit about, one, what you think of that and then, two, the varying degrees of complexity in these supply chains because it seems like there is still a ton that’s out of touch for someone [who] doesn’t have the expertise and the connections that you all do.

Alex: [00:16:06] Yeah. I think beauty is an interesting category, like I mentioned before, because of the regulatory requirements and the testing which makes the barriers to entry a little bit higher than other categories, like apparel maybe. And, based on the way that we have these relationships with suppliers around the world, we’re able to pick the right suppliers for the right opportunities, move very quickly when we have those ideas and, because we’re nimble and we’re a small team, we can really get things done very fast.

Richie: [00:16:31] On the exclusivity side, the interesting background of this is, traditionally, pre-internet, whatever, you had a lot of stores, because they were the places to get stuff locally, they would have products a lot of other stores would have, but you only could get them locally so you would go there. Now, with the internet, you can get most things in a hundred thousand different places, which has a lot of effects on price pressure and assortment and all that. How did that exclusivity insight appear, in a way? Because I think, what we’re also seeing, is, if the same product is everywhere, it turns it into a commodity market and it just crushes everything. And so you see a lot of companies pushing more toward, “Okay, I need something no one else can have,” not, “I’m trying to buy the hottest thing that everyone else has.”

Alex: [00:17:13] Right.

Richie: [00:17:14] Right. As an inflection.

Alex: [00:17:15] Exactly, yeah. So it comes from us saying to our customers, “We talk to our retail partners every day.” We love them and we really listen to them closely and if we hear that there’s a demand or an insight from their consumers or from their management for exclusive product that’s very defensible, we’re willing to do that. And a lot of companies are not willing to do that in our space. “This is the lip gloss we’re making for fall 2018 and we’re not going to change it and you’re going to only have it one way.” But we have this flexibility, because of our size and because of our our supply chain that’s very flexible, we can do these things that a lot of companies really can’t. It gives us an interesting value proposition to our retailers that work with.

Richie: [00:17:51] Yeah. It seems almost that private label are the new niche brands, in a way.

Alex: [00:17:54] Yeah. That’s a good call.

Richie: [00:17:55] But you can’t get them anywhere else.

Alex: [00:17:57] Right.

Richie: [00:17:58] So what does it take to then set up a company, like yours, that is optimized for that? Because you’re basically saying, right, [that] there [is] going to be a net massive amount more SKUs in products, that have less scale, but that’s okay.

Alex: [00:18:10] Right.

Richie: [00:18:10] And you have to kind of build the business in a way that makes that okay. So, did you know that going in? Or how was that evolved? And then how do you actually do that?

Alex: [00:18:16] Yeah, we knew that going in. The pressure kind of falls on the design side. So, us having really talented, quality designers [who] can move fast on the design process makes it go much more quickly. As long as the quantities are above a certain threshold, we’re fine. But the biggest roadblock, I would say, to answer your question, is design. We can come up with ideas all day long. It’s just a matter of executing and putting the wheels into motion. We can produce as many SKUs as we want, as long as all the artworks done, all the flavors are done, the formulations are done. All of that can kind of get bundled up very quickly. It’s just a matter of designing what the product is.

Richie: [00:18:54] Because the three-prong structure, in a way, is somewhat new, how did you get there? What sort of pressures or tensions happened over the last two or so years that you’re like, “We need to do this”?

Alex: [00:19:04] That’s an interesting question. Because we are so diversified across the retail landscape and across many segments, we saw a need to differentiate how we conduct business within these various retail channels. There are a lot of customers [whom] we work with [who] love our Taste Beauty brand and they’ll tell us that all the time. And they’re mostly in the mass market and in the specialty world, like the Claire’s and the Justices of the world that are very teen and tween focused. And we’ve seen a need from them to work with us on our Taste Beauty brand, which they are seeing as an emerging, potentially lifestyle brand for teens and tweens, which is a hard-to-reach market, especially on ecommerce where they don’t have credit cards. So it makes that piece a little more challenging. So they are really focused on the brick-and-mortar side. And these are fun shopping experiences for these consumers. They know that we now know how to make fun product that gets shared and it gets a lot of buzz. Having that ability gives us a lot of power in that space. So that was one side.

Alex: [00:20:03] The Taste & Friends is our licensed product. That kind of differentiates from the Taste Beauty in that we’re kind of dependent on, if you put aside the evergreen brands and the food and beverage space, it kind of makes us reliant on the next big thing. So we’re constantly on the hunt for the next big toy brand, the next big movie coming out. All these things that really drive awareness for consumers within this segment, across the retail landscape. So we have relationships with all of these movie studios and all of these licensors and all these toy brands and retailers count on us to have the next big thing. So being able to offer that as Taste & Friends makes us seem more relevant in that world, which we had been doing already, but it kind of allows us to make a distinction for what we stand for. It’s kind of a friendly name.

Richie: [00:20:50] Literally.

Alex: [00:20:51] Yeah, literally.

Alex: [00:20:51] And then the Taste Labs—it spawned out of our relationship with Sephora on these programs we’ve been working on. It’s kind of like, “How can we really do these cool things that are special and are fast to market and are just totally exclusive and unique and innovative and completely differentiated from the rest of our business?” Doing some things like the Felicia the Flamingo and the Glamspin were two catalysts for, what if we took this thing a little more seriously? What if we looked at where the opportunities are? Maybe there are more media companies out there that are looking to expand into the beauty world that we could do really cool products for and really cool programs for. And then do that from a direct-to-consumer side on ecommerce and also work with select retail partners on what made sense for them on that. And then we’ve seen a lot of demand from retailers to do, like I said before, exclusive collaborations, exclusive products. So this puts us at the nexus of all of these emerging trends that we think allows us to add a lot of value to all of our partners.

Richie: [00:21:58] How has the longevity of products changed over the course of your career?

Alex: [00:22:03] That’s a good question. I’ve seen trends move much more quickly than—I mean, I don’t have too long a career but in my—

Richie: [00:22:09] I feel like you’ve seen a lot.

Alex: [00:22:12] Yeah, I’ve seen a lot.

Richie: [00:22:12] Talk more about that.

Alex: [00:22:13] I think that, at least in the licensing world, it’s very big spikes and very big drop offs. And I think it’s always kind of been that way but it’s been more so recently. It’s kind of driven by toys, in a big way, and that’s sort of where the trends start. And if a certain toy is hot and then all of a sudden something happens and it’s fallen off then it’s going to affect the consumer products outside of the toy arena. So that’s a big factor, I’d say.

Richie: [00:22:39] How quickly do you feel like you have to reinvent yourself on the product side or on the design side? How much pressure is on that to say, “Okay, this flamingo thing”? Is that done for the next season? What is the longevity of these things?

Alex: [00:22:50] Sure, sure. So that would be an exclusive product that was just for summer 2017. That’s done.

Richie: [00:22:54] So it’s truly seasonal stuff.

Alex: [00:22:56] Truly seasonal stuff. Not everything that we do is seasonal. We have some products that never really change. We’re constantly developing. We’re about to hit 2,000 SKUs.

Richie: [00:23:06] Active?

Alex: [00:23:06] Active SKUs which is pretty amazing. We’re always developing. We do a handful of products every single day.

Richie: [00:23:12] Wow. So what’s the business model behind that, I guess, at a high level? In terms of, are you making money on the development side, the design side, the supply chain, the manufacturing? How do you think about that?

Alex: [00:23:20] Traditionally, most of our sales are wholesale. We have some other creative partnerships where we’re able to work out different cost structures, more on the lab side. But, traditionally, we are manufacturing product, all cut-to-order for a specific retailer and selling it to them, case by case. We don’t hold much inventory which mitigates a lot of the risk and allows us to really focus more on the design side and development and coming up with new, crazy ideas.

Richie: [00:23:46] I think, in other parts of this world, there’s been a push toward more vertical integration of having all this stuff in house and all that. You’ve gone, somewhat, [in] the opposite direction. Well, one: Why? And then, two: How do you think about what do you need to own versus what do you not need to own?

Alex: [00:24:00] I don’t think we have a real answer to that yet.

Richie: [00:24:03] But you don’t own factories?

Alex: [00:24:05] No, no, no.

Richie: [00:24:06] But do you think about that someday?

Alex: [00:24:07] We’ve thought about it. It’s interesting. There’s a whole other layer of complexity that comes into managing a factory and overseeing that. There are obviously advantages too. It’s complicated when you’re doing so many different types of products.

Richie: [00:24:17] Because I assume you’re using tons of different suppliers.

Alex: [00:24:20] Exactly. So, a factory that makes lip balm might not make bubble bath, for example. So, having those distinctions is a little difficult but it’s something we’ve thought about. It’s definitely intriguing. If we had more scale and resources it’s probably something that we would probably take a little more seriously. But I don’t think it’s a major driver in the next five years, let’s say.

Richie: [00:24:41] Maybe it’s the same as, with the licensing of—you’d still end up with the same amount of money.

Alex: [00:24:45] Exactly.

Richie: [00:24:46] For the headache.

Alex: [00:24:47] 100%.

Richie: [00:24:48] Tell me if this is right: It’s not that products cannot get made but it’s how quickly and at what price.

Alex: [00:24:53] Correct. We make really fun, cool product. We know this customer better than anyone else. Most of our competitors are not as creative or nimble as we are which gives us a big advantage in terms of our creativity our innovation and what we offer to our customers. That makes it really compelling for consumers.

Richie: [00:25:14] Talk more about the 3D-printing side of it, in terms of, how did that come onto your radar? And then maybe what’s a comparison of “without that” versus “with that,” in terms of speed-to-market or cost? Or what that does for you?

Alex: [00:25:27] About… maybe six months before we started the company, we started seeing that 3D printing was becoming viable for sampling. And, as we started the company, we said, “How can we take advantage of this, knowing that it’s going to be where the future of product development is going and where the future of mold-making is heading, at least from a sampling perspective?” It has really changed the game for us. Something that would have taken a little over two months to get off the ground, we can get a sample in a week and then we can get the mold made in four weeks because there’s already some infrastructure there, on the design side, that allows the mold to be made faster. It cuts it down by at least a month.

Richie: [00:26:09] How do you, both personally and as a company, oscillate between managing a brand and not? Because you have Taste Beauty as a brand and then you also have to put yourself more in the creator/manufacturer’s shoes. How does that work?

Alex: [00:26:21] That’s something thats evolving right now. We’re making investments over the course of 2018 in marketing and social media to build out the Taste Beauty brand in a bigger way. Right now, it is pretty much primarily driven by our presence on Instagram, as well as retail awareness. It is a form of marketing when you go into a certain store and you see an assortment of products from Taste Beauty. It creates awareness for the brand. So we see a lot of things like that.

Richie: [00:26:48] Yeah. But maybe it’s also an advantage that you have the brand side because you’re not just a manufacturer when you’re talking to the other two sides of the business.

Alex: [00:26:55] Correct. It also allows us to take risks on pop culture products that some of our licensing partners might not be as comfortable with, but it allows us to do some fun things. We’re doing an avocado toast lip balm. It’s similar to the bacon thing, but why not? We could go to an avocado company and license it but it’s more fun if we can put our own spin on it. Our designers are incredible, like I said before, so they have a lot of fun with the design and the packaging and it allows them to take risks and come up with crazy ideas. So it’s an interesting piece.

Richie: [00:27:26] Talk more about the media side, in terms of when did you start to say, “Okay, there is actually something happening here.” Because this whole idea of—someone called it “content and commerce, ”which, to me, is even a dated term. People with an audience selling things to the audience, I think, has been a dream, maybe, for a long time, but its not actually worked well.

Alex: [00:27:46] Yeah. I think if you look at where attention is going for consumers, it’s definitely going toward influencers and niche media networks and places that people have a strong affinity to what they stand for, especially in the older demographic, the Forever 21 consumers. We play a lot in that space and we think about that a lot for some of these media projects.

Alex: [00:28:11] It’s something that I think—it’s risky because there is an inventory component, potentially, and that’s something that we would love to figure out how to solve. How do we mitigate risk on the inventory side? And I don’t think pre-selling is the answer because people want that instant gratification. But how do we mitigate risk on the inventory side? Or how do we make that easier to stomach while also taking risks on the upside that some of these things could bring to the table? And I think the distribution and awareness that some of these companies have, within a really niche audience, is important to consumer products. And I think BuzzFeed is doing a great job at that.

Richie: [00:28:50] Right. That those are the new niches getting built or can bring the same audience to the table in a way that Sephora can on its own but they just, structurally, look different than a retailer.

Alex: [00:28:58] Correct.

Richie: [00:28:58] But it’s just attention.

Alex: [00:29:00] It’s attention. It’s attention. And the traffic that we see in Sephora stores—they might not have as many stores as a Walmart, but their rate of sale is much higher. And we think that some of these media brands—and we’re talking to a lot of them—we think that they have some resonance for these programs and it’s just [about] figuring out the right product, at the right time, at the right price. I think there will be—what Kylie’s doing with the lip kit and all of that stuff is sort of the eternal case study, I think, for what this could be, on the biggest possible scale. It’s obviously a dream to have an opportunity like that but it’s a matter of finding what the next thing is. We’re on the fence about influencers.

Richie: [00:29:37] Talk more about that. I was gonna ask.

Alex: [00:29:38] Yeah, obviously it’s incredibly relevant, but in terms of doing direct-to-consumer products on the back of an influencer, I think the jury’s still out in terms of how viable that can be. But I do think there is definitely opportunity.

Richie: [00:29:51] I wonder, is it any different than just like a seasonal trend? Like is there just get a rise and all fall together?

Alex: [00:29:56] That’s a good parallel. Yeah. But, then again, it goes down to retailer calendar cycles, which are challenging in terms of making that all click. And then, if we’re going the direct-to-consumer angle, there’s that inventory piece. Like how do we really know that this person is relevant for this product and their audience will really care about it?

Richie: [00:30:14] Right.

Alex: [00:30:15] And is the juice worth the squeeze?

Richie: [00:30:16] Right.

Alex: [00:30:16] But I would say, probably over the next 12 months, we will figure something out in that arena. We’re just not sure what that will be.

Richie: [00:30:23] What’s your read on what Kylie has done? Because, from what is publicly available, it’s almost half a billion dollars in about two years.

Alex: [00:30:31] Womenswear, yeah.

Richie: [00:30:31] She apparently owns most of the equity in the company. It’s not a license and so it’s fascinating to begin with. Can anyone else replicate that who doesn’t have the last name Kardashian? Or how do you think of what does that mean, beyond it just being an anomaly?

Alex: [00:30:43] I mean, the scale is enormous. In a dream world, we would have a Labs project that could have that level of scale and I think we have the level of ambition to get there and we have the desire to make that happen and we really want to become a very serious player in that space and we’re working hard to get there. It’s just a matter of finding the right person, at the right time, with the right vision that shares the same vision that we do that can then bring that to consumers.

Richie: [00:31:07] How have your thoughts evolved on retail’s role in all of this and what you’ve been doing?

Alex: [00:31:12] Incredibly important still. The scale from retail, within this category, is still not where it is on just setting up a Shopify site and blasting it out on Instagram. You can’t compare.

Richie: [00:31:23] Why do you think that is?

Alex: [00:31:24] I think there’s still time to mature. I think price point is a factor, at least for us. A lot of our products are relatively lower price point and more affordable and shipping is a factor.

Richie: [00:31:35] Right, of shipping, one.

Alex: [00:31:36] Correct.

Richie: [00:31:37] I mean, what’s a lip balm? Two bucks?

Alex: [00:31:39] Yeah.

Richie: [00:31:39] So shipping’s, what, like five?

Alex: [00:31:42] Exactly. So that makes it challenging. I think, when you’re doing lower price points, the velocity that you can generate on an impulse-driven product that, maybe has some awareness or it’s cute or it’s a pick-me-up or it makes you smile or it’s funny or just kind of quirky and cool, you’re willing to take that risk as a consumer in a brick-and-mortar store versus online.

Richie: [00:32:01] Because you also can just de-risk it in ten seconds because you can grab it and try it.

Alex: [00:32:05] Exactly. Yeah. And you touch it feel it. I think there’s a big element to that in our world.

Richie: [00:32:10] Interesting. What’s it like selling low price? If a business wants to make money, right, it can sell a hundred things for a dollar or one for a hundred, right?

Alex: [00:32:18] Right. Exactly.

Richie: [00:32:19] They’re all the same. None of them are easier or harder.

Alex: [00:32:21] It’s challenging. It’s hard for some of our licensing partners to understand because if you compare a t-shirt to a lip balm, and let’s say we’re selling the lip balm for a dollar—

Richie: [00:32:28] Right and there it’s all percentage based what they’re earning.

Alex: [00:32:31] Exactly. Exactly. So, we could sell 100,000 lip balms at a dollar, it’s $100,000. But you could sell 100,000 t-shirts at $10 and it’s a million.

Richie: [00:32:40] How do you think about pricing and price elasticity? Because to me, in my own business, that’s been the hardest thing.

Alex: [00:32:46] It’s very hard. Our rule of thumb is we don’t want to take an unfair margin. We want to price it as low as possible so we can move velocity at retail and that helps our retail partners, it allows us to offer them more margin. We like to say we try not to be pigs. We’re trying to grow a real business here, to a sizable scale that makes it important and we’re trying to make it so the products are moving on the shelves, selling and our retail partners are happy.

Richie: [00:33:13] What about Amazon?

Alex: [00:33:16] Ooh, so—

Richie: [00:33:16] You knew I was going to ask.

Alex: [00:33:16] So, currently, we do FBA—fulfillment by Amazon.

Richie: [00:33:22] For the Taste brand?

Alex: [00:33:23] For the Taste brand. It’s very early. We’ll see how the year plays out. We’re optimistic on Amazon as a channel for the Taste brand. We don’t have our own direct-to-consumer site. We’re kind of shelving that off to Amazon. We’ll see how it goes.

Richie: [00:33:36] Yeah.

Alex: [00:33:36] We had hoped to get up in 2017 but it’s really getting traction in Q1 ’18. So we’ll see.

Richie: [00:33:42] Part of me thinks that, because you’re playing at commodity level prices—a lot of luxury brands are obviously hesitant because they don’t want a $1,000 handbag to be 200 bucks.

Alex: [00:33:49] Right.

Richie: [00:33:50] But what is $2 versus $1.88? You know, how much does that affect your brand perception?

Alex: [00:33:55] Correct. Not a big impact. But it’s a matter of putting together bundles. So we’re doing a lot of that. So it’s like, what’s the right bundle to put together?

Richie: [00:34:03] Right. So it’s up to a $20 or a $30 dollar order, not $2.

Alex: [00:34:06] Correct.

Richie: [00:34:06] Interesting.

Alex: [00:34:07] And that helps the shipping thing, like I mentioned before. But the FBA is all on Prime.

Richie: [00:34:11] Right.

Alex: [00:34:11] So that is a great feature to doing it that way. Previously, we had been set up as a standard vendor. It’s a matter of seeing what works for certain price points in these various bundles that we could do, which products are really resonating, and getting them on quickly, once we have products available to sell in inventory.

Richie: [00:34:31] And they also, from what I know, haven’t touched any private label beauty at all yet, right?

Alex: [00:34:35] I’m sure they’re going to get into it soon.

Richie: [00:34:38] Yeah, I think apparel has been more of the focus now but they’re obviously going to get there at some point.

Alex: [00:34:42] Yeah, I think it’s a great idea for them.

Richie: [00:34:44] Yeah, call you.

Alex: [00:34:47] Yeah, that’d be cool. No, I think it’s a great idea for them. I think they could probably execute on a number of brand concepts quickly, like they’ve done in apparel. And I think that, from an imaging standpoint and brand imagery, I think they could probably get it done well and fast and quality.

Richie: [00:35:07] We’ll see.

Alex: [00:35:08] Yeah, we’ll see.

Richie: [00:35:08] What’s been the cheapest and most expensive lesson building Taste?

Alex: [00:35:12] I think the cheapest lesson has been, early on, we committed to a lot of inventor-type projects that were not as commercially viable as we thought they might be. Our rule of thumb, generally, when assessing projects is, if we were to start a business today, would we start with this idea? And we come across those ideas all the time. We come up with them internally. People pitch them to us. But we’ve had a few of those ideas that have come to us where we’ve deliberated that way, we’ve had that conclusion and we show it around to some people we trust and they’re like, “Oh, I don’t know if it’s going to work.” That’s one way we’ve learned some lessons.

Richie: [00:35:52] Just setting up those boundaries.

Alex: [00:35:53] Exactly. And that’s always going to be the hardest thing is figuring out which projects to do and which not, in any business.

Alex: [00:35:57] And then most expensive. Probably airfreight. You would think that our products are pretty inexpensive to ship and airfreight because they’re light and small but, when we’re working on relatively thin margins, it’s always a factor and we hate to do it, but, you know, sometimes we have to.

Richie: [00:36:15] What keeps you up at night about the business?

Alex: [00:36:19] Obviously, product recalls. It’s never happened, thank god. It never happened in our prior company. Knock on wood, it will never happen ever in the future. But in any ingestible product it’s something to think about.

Alex: [00:36:31] And, obviously, cash flow, as we grow, is another thing that keeps you up at night. We’re constantly reinvesting in inventory and growing. It’s the typical cycle of a high growth business. That’s kind of where we are now.

Richie: [00:36:42] Do you have to hold the inventory or it depends?

Alex: [00:36:45] Depends. If we do a replenishment program with a certain retailer, we do have to hold some inventory. If it’s an in-and-out program, we’re buying just one-to-one, cut-to-order for that specific program.

Richie: [00:36:54] And then, with this new structure and where the business is today, where do you think you would be wrong about where you’ve set everything up, if anywhere?

Alex: [00:37:03] In terms of the Taste brand, I think we could be wrong if the level of awareness is not at a point that we think it is and we’re out there telling people that there is awareness is at a certain level and it’s really not, based on our own delusions. We hope that doesn’t happen but it’s probably a reality with any brand that’s being built.

Alex: [00:37:20] In the licensing world and the Taste & Friends world, it’s picking the wrong license to work with or just people. Kind of a lot of it comes down to people. We pretty much work with people [whom] we trust and [whom] we respect and if we’re not feeling the love we’re not going to be as—

Richie: [00:37:34] They’re not a friend.

Alex: [00:37:38] Yeah, they’re not a friend. In the labs it’s picking the right projects to do.

Richie: [00:37:41] And then you, obviously, came up with a family that was doing this stuff. That traditionally has been a big part of this industry is having a family lineage to it, but it seems that, as younger generations come up, that’s changing a bit and maybe multigenerational companies are no longer being run or those new generations are interested in them. How much you think the family will be a part of this industry in the next 50 years or something?

Alex: [00:38:07] Honestly, I have no idea. I was in the incredibly fortunate position that I’m in right now based on some of those relationships that I had established, both working for my dad, and established relationships that he had had. So I’m always grateful to that and appreciative.

Richie: [00:38:24] More personally, even just in terms of getting to the point where you’re like, “Oh, this is actually interesting. I want to spend a significant amount of time my life doing this.”

Alex: [00:38:31] Yeah. No, it’s funny. I’m obsessed with product. I always have been—and just brands—and got a laundry list of a million things in the cooker always, at any time. The thing that I love about this space is that you can be as creative as you want to be. You can be as collaborative as you want to be. There’s a real innovation component when it comes to the componentry, like I mentioned earlier in packaging, and there’s some really cool stuff that you can do in this space. It’s also a growing category and it’s just a really fun place to play. There’s an interesting piece of being a guy in the beauty world and one of my partners, Sabrina, is a woman and Tom is a guy. So it’s three of us. And it’s something that I really do love and having a lot of fun.

Richie: [00:39:11] I guess we didn’t even talk about the category at all, but my summation is beauty seems to be like three to five years ahead of where apparel and a lot of other consumer products are. What is yours and why do you think it’s having the moment that it is? And will it last?

Alex: [00:39:24] I hope so. No, I do think so. I think that, with the rise of social media and selfies all that, I mean this has all been said before, but I do think it increases the importance of appearance and beauty as a category, for better or worse. And I think that the ability to make a small, low price point, impulse purchase that uplifts your day—which is kind of what we’re all about is just fun pick-me-up products that make you smile—and then have the ability to share that on social media with all of your friends is a real endorphin boosting thing for a lot of people that I think will continue to move forward in the world.

Richie: [00:39:59] Awesome. Thanks so much for talking.

Alex: [00:40:01] Appreciate it, Richie. Thanks.

Richie: [00:40:10] Thanks for listening to the Loose Threads Podcast. You can read full transcripts of the podcast and join the newsletter at LooseThreads.com. Feel free to leave a review on iTunes. We always appreciate it. This episode was edited by George Drake Jr. and my thanks to him for his time on it. We have a great roster of upcoming guests, including Jack Carlson of Rowing Blazers, Micky Onvural of Bonobos and Brian Watkins of Rep the Squad. Thanks for listening and talk to you soon.