Dr. Dennis Gross Skincare: Dennis and Carrie Gross

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29:56Hey, welcome back to How I Built This. I'm Guy Raz. So it's 2002 and MD Skincare is moving into spas and even a few stores like Nordstrom. And then Carrie decides to pitch it to a French beauty store that's relatively new to the U.S., Sephora. And I remember flying out to San Francisco and, you know, sitting down in their conference room, imposter syndrome. I'm thinking the Nordstrom people knew me, so I was fine there. But I'm thinking, are they going to just think I'm the doctor's wife that I don't know what I'm doing? And so it was a little nerve wracking. And I sat down with them and then we fell in love with each other.

30:38But we actually so we had this like beautiful business model. I just want to tell you that like our clients would travel and they'd go to the Four Seasons in Maui or they'd go to Florida and stay at a resort. and see our products. And then they'd go back home and they'd go to Nordstrom or Sephora and see our products again. And they're like, wow, this is pretty interesting brand. It's a professional brand, but I can also buy it in my local department stores. And so they they had this journey and it had this beautiful kind of halo effect on our brand of really being authoritative in the space. And Carrie, I mean, when you guys decide, OK, we're going to go to a contract manufacturer.

31:25We're going to have them make this stuff. We're initially going to just sell it to our own customers. So it probably wasn't that expensive because you were probably able to sell it at a premium. But then when you decided to make it for cosmetologists working at spas, I mean, was it hard to finance that or was it, I mean, was it relatively straightforward, like from a cashflow perspective? So we had a business plan. We found a graphic artist. We did a logo. We set up the initial SKU assortment. Of course, we had to have a sunscreen in there for sure. We had a cleanser. It was a tight assortment, maybe like 12 SKUs.

32:04And when I needed money, I would have to have Dennis write me a check. Right. Basically, the money from your practice, Dennis, was going to finance this thing, right? It did. Right. Just went into my savings account, had the guts and did it. You know, I have to tell you that in those early years, we were so busy. I mean, at this point now, I've got four kids, not me. We have four kids. It's amazing. You guys built this business and raised four kids, but keep going. It was crazy. But, you know, I started off with a team of independent account executives. Like, we had consultants. We didn't have any employees.

32:44So, you know, my best friend was helping and like we would be working out of our apartment. And what were you doing? Were you trying to like sell? What were they mainly doing? Yeah, we were opening new accounts, opening new spa accounts, and then trying to figure out a forecast and how are we going to enter into the Sephora market and how are we going to service those doors? And so in any case, I think by 2002, we hired our first full-time employee. And what was that person's role? Were they like a Swiss army knife? Did they do everything? She was in the field. She was in the field. So we had opened our first official office in 2002 on Madison Avenue.

33:29It was an exciting time because the product literally sold itself. You know, once someone tried it, consistently people were taking us as an account. This was the alpha beta peel that you developed. And by the way, how much was it to do the alpha beta process at the time? It was about$75, I think, for a month's supply. That was a lot. That was a lot to ask. I think the clients expected, okay, I know I need a cleanser. I know I need a moisturizer. but this is something different. This is a different step in my regimen. And so they really, you know, we had clients that were coming to us with skin problems like acne, hyperpigmentation, advanced aging.

34:18So they were, it was an emotional purchase and they became super fans. They were incredibly loyal. And there's one other thing that I want to talk about really quickly. So we packaged the peel in packets, tandem packets, step one and step two. And this format gave us the ability to sample. And also, like back in the day, like we were doing direct mail. We were mailing these little packets in envelopes and we were doing skincare challenges. and, you know, you could get on an airplane and then pass them out to the flight attendants and the people next to you and people were, you know, they could go on vacation and pack them easily.

35:06They just were really easy to use and they were perfectly dosed. You know, so it was just the design of our peel packets, I think, was part of our secret to success. I know that you eventually got it patented. You had to because you had to protect this. But was that expensive? Was that time consuming? Tell me about the process of getting that patent done, because that was critical. It was both. Yeah. Crucial. Crucial. How much does it cost, by the way, to get a patent on something like that? You know, my recollection is it was somewhere in the order of$100 ,000. God, that's so crazy that it costs that.

35:45But you got lawyers and you got, but it is very challenging. It is very challenging. But I really felt like my motto then was, you know what, if there's any justice in this business world, this product works so well that we are going to be very successful. And all I wanted was, you know, for it to be a meritocracy. Yeah. And as we grew, there were times where we were in the early days, Carrie, right? We were losing money. And that was tough, you know. Actually, we went through our savings, and I took a mortgage on our home to get extra, and I put it towards the company. Now, that was challenging, and that's where I had some concern with, what am I doing?

36:26And I have four kids, and I'm supporting my family through my practice, and now I'm investing in a company. And it's teetering because growth costs money. And before you turn into profit, you have to have the confidence to put more money in at that point. But I think by the time we got to 2005, Dennis wrote a book. And that was a big deal for us. That gave us a lot of – he did a book tour. We started winning awards. And at that point, we were on the brink of breaking even. Before that, it was kind of like, okay, who are we going to pay this week? Are we going to be able to collect$200 ,000 by Friday?

37:09And that was kind of the startup energy every single day that I would go into the office. And Dennis formulates all of our products himself. He hand selects meticulously every ingredient that goes into every single one of our products. And in addition to that, we do clinical testing. And that's very expensive. So it was becoming quite an endeavor, the company. Yeah, I'm curious about, I mean, tell me a little bit more about what cost you money, because what are the other big expenses? Advertising? I mean, what costs so much money? We never advertised in those days. No. But I mean, as far as the money goes, a lot of it really was staffing.

37:51It was people. I mean, do you remember, you know, by, you know, five years in, 2005, 2006, I mean, was your revenue, you know, were you bringing in more than$10 million? dollars? So, you know, it's funny that there's certain financial milestones that I always really remember. And I remember the first time we hit a million dollar month and it was just like, you know, we all were like celebrating in the conference rooms, but we were definitely breaking even. And then we all of a sudden started to turn a profit. So you hit profitability roughly when, Do you remember? I think we hit break even around 2006, but we didn't even have an e-commerce site until 2007.

38:41So that's when we really started to see some profits coming in. I mean, in terms of growing, I mean, this was it was organic growth. But do you remember just to give me a sense of where you were? Do you remember you mentioned that, you know, once you hit a million dollars in sales a month, Do you remember what year that was? So we started to grow. Then in 2008, we slowed down a bit. So it was probably around that time, 2008, 2009. Tell me why you started to slow down a bit. Because of the crash. The crash, okay. That was a disaster. You got spooked by the financial crisis. How did it affect your business?

39:23We actually fared very well because at that point, we were going through a name change, And I had reduced our inventory so we weren't sitting on millions and millions of dollars of inventory that wasn't moving. I also want to add one thing to a little more texture to the crash of 08 and how we navigated that. The way we got through it was literally our employees were so loyal and we had such an incredible culture to our company that they agreed to go for weeks without pay for us to catch our breath financially. And that was one of the greatest highlights of my career when I saw our employees just say, we believe in you and we want to support you and we're not going to leave and find a job someplace else.

40:19So, you know, being good to your employees was really important for us to survive that little era. Yeah. But right around the same time, I think you guys had another problem on your hands because you got sued, right? You got sued by, I guess, by a similar company that was called MD Formulations. And basically, they sue you because your name, of course, was MD Skincare. And you're several years in now, and then they're pointing out or they're saying that your names are too similar. Right. They slapped us with a lawsuit, and then they tried to buy our brand. And so had they been around longer than you guys?

40:54A little bit longer. And they were owned by a company by the name of Allergan. And so in any case, the company itself, I think, was going through some trouble and they were sold and they tried to buy us. It was just it was craziness. And we just decided we wanted out. We weren't going to fight the lawsuit. We were just going to change our name. So you decided not to fight the lawsuit. Yeah, we settled with them. How long did it take before you got there? Because I think you were decided you were going to fight the lawsuit. Well, initially we started to go through depositions and it was a total nightmare.

41:31It was a distraction. It definitely took a lot of time and energy away from actually building our business. but we decided that we didn't want to fight the lawsuit that we were going to change the name and yeah it was tough times we had to make a decent size settlement payment to MD formulations and you know pay the lawyer's fees and so that year was really tough for us and Dennis and I had a lot of back and forth because he didn't want to put his name on our brand. But I convinced him. Tell me, Dennis, why didn't you want to put your name on the brand? Because it was called MD Skincare up until 2010.

42:14And now it's going to be called Dr. Dennis Gross Skincare. Tell me why you were elected. Well, you know, because the last name Gross is sort of a disconnect connect with beauty, you might say. And maybe I still was, you know, thinking about my being ridiculed in the schoolyard and junior high school. You're gross, you know, and it was a thing. I did not know how that that would be received. It's not actually how you pronounce my last name, to be honest. It's Jeroz, but that's a different story. Nonetheless, that was really the reason. Yeah, he did. I had to pull rank on him. I was CEO of the company.

42:51I'm like, sorry, babe, We're going for it. And it was it was a blessing in disguise for sure. But I will tell you, it would be kind of humorous where I'd be like, you know, sneaking around like Nordstrom and walking through Sephora and hearing people saying like, oh, my God, gross. Are you serious? When we come back in just a moment, Dr. Dennis Gross Skincare does a star turn on TikTok with a mask that uses LED light. Stay with us. I'm Guy Raz, and you're listening to How I Built This.

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45:19Hey, welcome back to How I Built This. I'm Guy Raz. So it's 2010, and Dennis and Carrie have a new name for their brand and a new twist on their most important product. We came back in 2010 as Dr. Dennis Gross and we launched a new version of our Alpha Beta Peel. It was the extra strength Alpha Beta Peel. And that was also disruptive and risky. and Sephora was a huge, huge, huge help to us at that point because I think they were scared too. I think we were all a little nervous. Are we doing the right thing? We've got this one peel that we've been selling for 10 years and it was our hero skew and now we're going to launch an extra strength version of an acid peel to put on your face.

46:09But I was just seeing it in my practice. You know, people saying, bring it on. You know, we know what the original version is And if this is going to be even better and the two steps will save me from getting blotchy and, you know, people went from being skeptics and concerned to full, you know, all out believers in what they can see on their skin. So the extra strength peel really was a big hit and still to this day outperforms. Yeah. Tell me about – so basically you're focusing on the brand and it's steadily growing every year. I mean, was there any moments where you start to think, OK, maybe we should bring in some outside investors to really supercharge the growth?

46:49Because I know it would happen later, but between 2010 and 2020, was there conversations that you guys had about that? You know, one thing that I always tell an entrepreneur or somebody that's starting out a brand, like take every single meeting. Take all the meetings because you never know who you're going to meet and what you're going to learn. And so over the years, we had quite a few meetings, wouldn't you say, Dennis? Yes, we did. But I must say, we reinvested every dollar back into the business in those years. So we had the cash flow and we had the revenues to support our growth. We, instead of taking an investor and taking money out of the company, we continued to live off the income of my dermatology practice and just believed in the brand and reinvested every day.

47:43And we didn't take a salary. Neither of us took a salary for 20 years. And Dennis, you were still practicing and you were still seeing patients every day. Absolutely. First of all, I needed to. Number two, it's what I love. And number three, it was actually in tandem with the skincare brand. So I maintain my practice to this day because it really is still what we call the living lab. Yeah, it probably became difficult to get an appointment there at a certain point because your name was on the brand and shops. And so, you know, one thing kind of whether that was intentional or not, it kind of bolsters the other.

48:21He had some pretty frantic years, frantic days, long, long hours. Yeah, I bet. Tell me about moving into like light technology, right? I mean, basically you developed a plastic mask with LED light to treat skin. And this thing went totally viral on TikTok a few years ago. How did that technology even start to emerge? It was a procedure done in my practice, right? LED is, you know, something that dermatologists do. What does it do for your skin? Two major things. Number one, it stimulates collagen. How does LED light do that? It's so crazy. It is crazy, but it is absolutely true. There's receptors in the skin, in the cells that produce the collagen, the fibroblast cell.

49:05And it turns on the production of collagen. It stimulates them. And as we get older, the amount of collagen we make diminishes. So LED, in my practice, was a big winner. Number two, it works on acne. The two biggest components, really, of dermatology were addressed by a treatment in my office. So one of the main things we do is bringing what we do in the dermatology clinic to the home of the consumer. There was an opportunity. And it was the impetus to say, let's create an at-home device. And that's what the LED device, that's the backstory. But I want to point out that our very first device was actually a facial steamer.

49:51We launched a steamer back in, I think, 2012. And it was very, very popular for many years. And it showed us that there was a hunger for devices. And the other piece of it that is so exciting from my perspective is the tools that our teams use when they go out in the field and they do facial events at stores and at spas. We use these devices on the consumer. And it creates theater and excitement. And it's really, really fun to be able to offer this to clients to be able to use in their home. But the thing about LED is you have to use it daily in order to see the results. And if you do, the results are spectacular.

50:37But to get the consumer to actually stay on the plan, it has to be convenient, right? So three minutes a day was the game changer, and we got results. And it's FDA cleared because it works. And some people just are concerned about the area around the eyes aging. So that's another device. And now the newest one is the lip. And, you know, trends, as I see in my practice, is that lips are just huge in terms of what people want. And it's just something that is part of our culture now. Larger lips, people coming in for lip plumping with fillers and injectables. So there was a trend we saw early, and that's where we brought that product to market.

51:20All right. So around 2020, either around the time of the pandemic or before, you bring in outside capital. A private equity group buys a minority stake in the brand. Tell me about the decision to do that. What was the thinking was, we'll take this money and we'll do what with it? So I'm going to back up and just give you a little story leading up to this. So our business is growing and I wanted to focus on international expansion. And so by 2018, 2019, now I'm starting to feel like, oh my God, I actually don't need capital. We're successful. We're profitable. We're making money each year. But I need a board of directors.

52:09I need some partners to really help me figure out how to really take this brand and turn it into a global force. So we hired an investment banker and we met with multiple, multiple private equity groups and strategics. And we kind of fell in love with a group called Mainpost Partners based in San Francisco. And we went through the whole deal process and we were getting close to signing the deal. And then the pandemic hit. And the deal was off. They pulled the deal. Stores closed and it was like, oh my God. You know, we thought it was bad enough going through like 9-11 and then the 2008 crash. The pandemic was just like shocking.

53:06It was shocking. And Dennis's practice closed. Sephora's doors closed. Every spa closed. And we were sitting looking at each other thinking, oh, my God. I think I was laying on the floor thinking, I can't believe this. I can't believe this. Are we going to lose our company? So what did you guys do? How did you handle it? Basically, we just rolled up our sleeves and went all in in the digital space. And we put Dennis on Instagram. and we did master classes for our clients so that we could stay in touch with them and make sure that they were okay. And about three months into the pandemic, I got a phone call from Mainpost, and they're like, we want back in.

53:59We figured out a way to make the deal happen. And so we got the deal done in June of 2020. A couple years after that, you got an acquisition offer, which you would then accept from Shiseido to buy you guys out. $450 million. Amazing exit. I mean, I imagine by that point you felt, all right, we've been doing this for 23 years more. It's time to kind of enjoy the fruits of our labor, I guess. Well, we wanted to find just the right partner with a company that would respect our culture, respect the brand that we built, and that was Shiseido. And we're still with them, by the way. We're still full-time and I still create the products and it's been a great journey.

54:50Yeah, obviously a huge brand and the ability to kind of super scale things like globally. That was one of the key timing factors. We actually, in 2023, launched into Sephora Europe. So I think we opened something like 17 countries in a period of like three months. It was crazy. And having Shiseido support us with talent and with experience has been incredible. And so now you're probably committed for a few years to stay with the brand. We have a three-year contract, and I don't know what's going to happen, but for right now, it's been wonderful. They're true partners, you know? Yeah. This is still a changing world in terms of skincare.

55:43Going full circle, going back to the day where skincare was just a moisturizer, you know, the future, I think, is absolutely incredibly exciting. And our pipeline, I think, is really exciting to me. I still want to create and innovate. When you think about how, you know, about the journey of building this, I mean, how much do you attribute to the work you put in and the time and how much do you think had to do with luck and timing? I don't think it was luck, to be honest with you. I think it was really a lot of discipline, a lot of creativity, curiosity, just like seeking out the white space and disrupting.

56:24And results. You know, if you really are distinctive in what you're bringing to the consumer and to the industry, then I think that people will support you. People will buy your product. And that is top line for me, is the results. Nowadays, the consumer wants to see the difference. And we have consistently done that. And that's what I'm most proud of, and I think we earned it. That's Dennis and Carrie Gross, co-founders of Dr. Dennis Gross Skin Care. By the way, that LED face mask that went viral, it doesn't just look like it's from outer space. The technology was actually developed by NASA. NASA thought that LED light might help speed up healing of cuts and scrapes when astronauts were in zero gravity.

57:19They didn't end up using the technology in space, but they did end up funding research that led to some of the first medical LED light devices back here on Earth. Hey, thanks so much for listening to the show this week. Please make sure to click the follow button on your podcast app so you never miss a new episode of the show. And if you're interested in insights, ideas and lessons from some of the world's greatest entrepreneurs, please sign up for my newsletter at GuyRoz.com or on Substack. This episode was researched and produced by Alex Chung and edited by Neva Grant with music composed by Ramtin Erablui.

57:51Our engineers were Patrick Murray and Gilly Moon. Our production staff also includes Chris Massini, JC Howard, Casey Herman, Iman Ma 'ani, Sam Paulson, Carrie Thompson, Catherine Seifer, John Isabella, and Elaine Coates. I'm Guy Raz, and you've been listening to How I Built This.

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