Ep.05 / Reinventing the Spa Industry with Adam Ross, Co-Founder of Heyday Skincare

0:04Today I'm chatting with Adam Ross, an entrepreneur who focuses on investing and incubating businesses in the beauty, consumer products and retail categories. um adam is currently the chairman of heyday um it's a brand that i've long been admiring and envious of a new kind of facial shop that makes professional skincare affordable and accessible um and kind of amazing because it disrupts so many different category norms uh we'll be talking about that a little in a little bit so hello adam thanks for joining me Hello Natasha, thank you for having me. So before we get into heyday, you know, I want to go back.

0:49You're Australian. Tell me why, when, how you came to the States. Okay, go back to the beginning. Although I will say I was in a taxi the other day in the city and I got told I had a very strong North Brooklyn accent. Oh, okay. I was like, no, it's Australian. And he's like, oh, okay. Close. I'm like, not really. But anyway. So prior to being more entrepreneurial, I had a little under 15 years actually doing mergers and acquisitions within investment banking. And I did a little over 12 months in Australia, sort of straight out of undergrad. and after 12 months they said hey why don't you go to New York for a few years and you know get some bigger experience get exposure to to a new market learn a lot of good things and then come back and you know come back to Sydney and and keep trucking along and at the time when I went actually in in in Sydney I was actually sort of put into the consumer products and retail group So that's kind of all I've known.

2:01And then, yeah, got transferred to New York at what was the start of 2001. Obviously ended up staying in New York, but had, you know, sort of the next 13 years in consumer products and retail work. So a lot of that was purely advisory versus sort of capital markets. But I think just such an incredible learning opportunity because at such an early age, you're literally sitting in the chairman's office, in the CEO's office, around the boardroom table. And, you know, you're hearing senior members strategizing about their companies. And it's not just about where they are today, but where they want to take them.

2:44And obviously, there's acquisitions and divestitures are part of that. but there's also a lot of you know sort of say imbued consulting work that comes with like you know looking at the competitors looking at the landscape the industry you know what's going to change what are trends we want to be capturing so you know to my mind it was you know look back it was ultimately such an incredible stepping stone to being more entrepreneurial but I loved it you know it was incredible it came with you know demanding hours and there's a lot you know a lot to it that was frustrating. But I think the insight into, you know, what C-suite makers were sort of talking about a Fortune 100 companies when you're 24, 25, 26 was incredible.

3:30So I think really fortunate to be working with like great bankers and great CEOs for that, you know, for that period. Yeah, amazing. I mean, in terms of background for starting your own business like what do you think you got that was different from many other people coming from different backgrounds like what did the banking M &A like what particularly do you think it it kind of equipped you for yeah good good question I mean I think when you're you know from a transactional perspective whether you're representing a company that's like buying a business or a company that's selling it as a buyer you're obviously working with the team and you're understanding like what attributes they they ascribe value to right like what what makes a good business you know what makes a great business what makes an outstanding business um and obviously there's various value implications for you know for that but you know great business is is comprised of many you know many different parts you know there's obviously there's obviously like the financials and like yeah that's important but they're generally an output of what needs to be a good brand, a good product, a good strategy, and a very well-run business operationally.

4:42So there's a lot that goes into that. But I think how to set up and structure and run businesses was certainly valuable on both sides of the fence. And then I think as I was getting more senior in banking, it was interesting because a number of my peers, they were gravitating more and more towards, I'd say, the front page of the Wall Street Journal deals. And there's something nice about doing, you know, doing, doing massive transactions, but I was actually going the other way. And I was more and more interested in working with the, the smaller mandates that a lot of the team was less interested in because I was working actually sort of so closely with the founder or the CEO who had actually built the business from, from scratch.

5:22And I think just seeing the, you know, the passion and understanding the story from like zero to one, from one to 10, you know, 10 to 100, that actually really, really gave me energy. And it was actually far more, far more interesting for me. And I almost sort of felt a lot more integrity with where I ultimately wanted to be spending my time and actually being on the other side of the table, like with them, you know, rolling up the sleeves. And I think seeing the satisfaction that can come with like building and sort of conceptualizing and birthing something that can serve a place that creates like delight and surprise for customers is a pretty amazing North Star to wake up to on a daily basis.

6:08Well, so how did you make that switch? Like was there an event? It was an idea, a meeting with a co-founder? Like how did you, because that's quite a big lifestyle change from, from something that's safe and presumably pretty, pretty good in terms of salary and package. Like how did you decide to make the switch? What was the trigger? I think like I probably cringe with naivety when I look back on one of the, one of the rationales, which was actually to have a better work-life balance as an entrepreneur. And yeah. Suddenly no bosses apparently. I jumped in that one with two feet and no net below me.

6:48I think over time I felt like my growth curve plateauing and I wasn't like learning as much. I mean, the beauty of banking is no two situations are similar. So like you obviously like learn things with like every transaction, but to my mind, it was, I felt I was sort of acting more in the role of agent versus me wanting to be a principal. And again, just, I think I've always loved creating. So I think the ability to go back to that with the benefit of like my experience and what I'd learned felt like an opportunity, you know, my early 30s to to sort of take that you know to take that that leap um and I sort of felt if I wasn't going to do it then then I was probably never going to do it and it's generally have a point of view probably better to regret something having done it yeah done it um okay then why why heyday what was the what was the white space that you saw obviously you know it's an interesting category because it's very, you know, irrational yet results-based.

7:56It's very fragmented. Tell me about what you saw. Yeah. I, over time in banking, you end up specializing within almost sort of like narrow subcategories of a broader sector. So one of the ones I actually found myself in was, was beauty. So over the, you know, probably five or six years in banking, I was doing a lot of work for the Lauders, the L 'Oreal's, the Revlon's, the Avon's, the P &G's, Gillette's. And I was actually doing an assignment with one of them that I came across Spar Services. And it was one of those ones where I was just like massive category, like resilience, incredibly sticky customer when you've got them, yet so incredibly fragmented and generally operating into a very outdated playbook.

8:44So it was one where there was, it was almost like the category was so massive despite its efforts to not be, you know, which is, and I think skincare, you know, at the time it was one where I had a point of view around, I think skincare separating itself a bit from beauty. I think when you hear the word beauty, it has this pampering, indulgent connotation. And I think makeup and color falls a bit more into that bucket than skincare, which I think is now more separate and probably within more of a self-care, you know, sort of like description. But no, I think it was one where, just to give it more context around it, and I think at the time, we're actually seeing some fantastic brands coming up in categories that have been very stodgy very outdated very sort of structurally misaligned and well I think I mean closer to home in the category you could say like dry bar you know was doing it or even like in you know soul cycle in New York they did such a great job freeing cycling from the gym and they made cycling a standalone exercise statement and they did it with a you know with an incredible community dry bar freed the blowout from the salon again did it did it so well, no cuts, no colors, and really played to a particular niche.

10:05I think the more relevant one actually for Hay Day was Warby Parker. And I think what Neil and the team did is they took a massive category in eyewear and it's just like, this is so structurally challenged. There's no reason why designer eyewear should be$400. There can be a trade-off in price without a trade-off in quality. And let's do it with a brand. Let's do it with a friendly voice. Let's do it with a connection and sort of like a brand sensibility that connects with a more modern consumer and makes engagement far more friction friendly. So to my mind, skincare was a category where like eyewear, it just, it checks so many of the boxes.

10:48And when I looked at, I'd say like the structure of the category, you had these very high-end spas. and they were generally like multi-service offerings but very expensive, very hard to get in or things were kind of like cheap but cheap in a bad way and there was nothing in that middle ground or sort of call it like aspirational luxury but you know to my mind there was no reason why facials should be$250 to$400 and trapped in a spa so I think the light bulb moment for me that a heart moment was let's free the facial from the spa you know and if and and if we reposition it in a you know more of a gender neutral unintimidating you know design inspired environment um you know facial is is self-care and it's part of a broader health and wellness investment a routine for for a modern you know a modern customer that's probably a bit more time strapped than they'd like to be yeah yeah no I love that so in between the kind of nail salon and the spa something that makes facials more like a haircut in a way something that's self-care maintenance regular yeah and I think it's and again I think it was we did a lot of research that was sort of invalidated it and I think the biggest barrier that came to you know why don't you get facials was just these friction points of time, cost, and convenience.

12:18And I think, again, like the high-end spas, they're generally focusing on a female-centric clientele, age 50 and above, that's got time and money. And I think that the aha for us was there is this broader psychographic cohort, early 20s to mid-40s, that they're focused on exercising well, they're focused on their food, their beverage, their vitamins, like their mental health. And, you know, skincare is self-care. I think like one of the biggest moments for me was, you know, skincare is arguably the second greatest daily use case in people's lives behind food and beverage. And there was no trusted brand and no way to actually engage.

13:03So there was a little bit of a, you know, if you build it, they will come. And we didn't want to build a brand that was around price, around convenience, like they're all part of the of the brand pillars but um let's offer us the offer the strongest value proposition in the markets and in doing so we should get people that either a get facials elsewhere but they want a better option but b let's grow the category like let's get people who maybe they get it once a year for a birthday or a promotion or when they're on vacation but like let's bring this into their lives in a way that they're making an investment in their skin and And again, this is part of their self-care spend and investment about being the best version of yourself.

13:44Yeah. And did you start with a membership model? We did. Yeah. Another good subscription membership, trying to bring people in, create that regular kind of behavior. Exactly. And I think because the industry was very fragmented and I'd say quite outdated in its approach, there weren't too many examples we could like look to with skin specifically and the reason we we did monthly it just worked out i think quite nicely is your skin cells renew every 28 days so in theory that's the right frequency that people should be getting a facial you know sort of come in let us let us get all the dead skin cells off let's sort of pump you with with professional product and serums and oils and set you up for a home care routine until you see us next month.

14:32So we started doing that in the first month, actually, that we opened our first door and weren't really sure, you know, what to expect, but it ultimately took on a bit of a life of its own. Yeah, amazing. So I'm a strategist. Do you have like a brand positioning or something that kind of informs everything, purpose, positioning? We do. What is it? And yeah, what is it? I think for us, we were inspired, Natasha, back in the day by Simon Sinek at the time. I don't know whether you've come across any of his work and sort of the Golden Circle framework that actually inspired how we name our business.

15:18and I think the concept behind it was there's, if you think about three, you know, sort of three concentric circles, but inside going out, you know, the why, then the how, then the what and his point being a lot of, I'd sort of say more uninteresting businesses talk outside in, you know, they talk all about what they do, you know, some talk about how they do it, but very few talk about like why they exist and I think people increasingly see brands as an extension of themselves and when Hay Day was launching, it was also, I think in a time when there was also a bit more of a paradigm shift in the market where 10 years ago, prior to Hay Day opening, you won by being all things to all people and I think it's the bar for what you need to execute on gets higher and higher and higher.

16:06You win by being specialized, like do one thing and do it well. um but for us the um you know while we could sort of talk outside in that you know what do we what do we do at heyday we give war class facials you know how do we do it you know we do it in a you know really inspiring and intimidating space you know we do it with with with education we do it with incredibly trained estheticians we do with professional products but the why we exist you know for us that north star was um to to help people be the best version of themselves and we start doing that with the skin that you're in so heyday it's actually a term that was used more by our parents and grandparents as this reference to back in my heyday you know back in my prime back in my best so it gave us natasha a really powerful like mission and vision in terms of why do we exist at Hay Day?

17:00And it had a dual benefit of how do we want to serve our clients, but also how do we want to serve our internal team? So I think a lot of the brand pillars actually come from the why and where we play that role in being the sort of like your trusted skincare resource. But I think in a world where a lot of people feel stretched a mile wide and an inch deep, we can be that go-to resource on skincare and there's real confidence and empowerment that comes with feeling in command of this area of your life so that that guided a lot of how we turn up in the market how we how we train our team how we how we construct little touch points not just like within the four walls itself but around sort of the 360 you know client journey and what we want to what we want to stand for as a brand i just think that actually service brands actually are, they're both easier to activate across touch points, but also harder because there's so many things you have to kind of think about and control.

18:06Like what suggestions would you give other founders about what's important when you're building more of a kind of consumer service brand? I think the one advantage of service brands is your ability to test and learn.

18:24And I mean, arguably, you can obviously do that across other, you know, you can do that online, but it's easy to do it in terms of whether it's with a service or a new touch point that, you know, take a shot, take two weeks and you can like test and learn. And I think that's, you know, generally where I come from, you know, in terms of where I'm predisposed as an entrepreneur, you know, I think having spent far too many hours in the boardroom over my crew arguing about what we think the customer wants, like get out there and test it. It's going to validate a lot of your hypotheses, but you're also going to get some hidden gems like these ahas, like would never have seen that in a hundred years.

19:02So I think for us, we were huge proponents of testing and learning. And then when things worked, we could then roll it out across more and more shops when things didn't work. We'd either cut it or we'd figure out how to you know how to adapt accordingly but you're right i think with you know for us with facials it is a it is a high bar you know if you if you have a bad experience it's tough to recover so i think you generally start off by like less is more and fewer touch points because i think these days if you do nine out of ten things correct and get one thing wrong people still remember you know where you missed it so i think we're all around um simplicity and minimalism but where we wanted to lean in was like almost over educating around the facial and the quality of the esthetician so like we made a strategic investment as a brand to really really invest in esthetician so that the upfront training you know the almost the exams they need to pass to be ready and eligible to be in the treatment room you know working with the right products is I think far more robust than than anyone else out there so that that for us was you know was like really important because if you when you've got someone it is a vulnerable experience you know they're lying on a treatment bed their eyes are closed it's you know you're very you're very close so it's like really important to get that one that one right um and sometimes it's less about what you do but it's it's the manner in which you communicate it and and imbue hospitality into the experience where you want to be the you know you want to be the highlight of someone's someone's day or someone's week yeah it's funny because i always think of test and learn as a digital thing you know i'm so used to doing that on more digital brands and businesses in terms of like a silly question but like how do you literally do you have like learning plans that then you pull through managers and estheticians or like how do you how do you do test and learn across multiple locations and no it's it's a great point I mean I think there's there's a bit of a rubics around how it how it works because in some cases we have a framework where people can actually sort of submit mid-ide ideas both within the shops and you know in our support office and both your employees and customers or so it's like a two-way no more of our employees i mean we do actually have a feedback um mechanism for from our clients which is which is great because you want the um you get some really helpful feedback you obviously get some that is also very helpful and difficult to read, but I think that's all part of where you need to raise the bar and, hey, is this a one-off issue or is this something where we're under-indexed in training, so we need to elevate the team or do better across here?

22:07So we get both feedback, but I think around the internal testing, some things are low effort, some are high effort. We have a point of view around what does success look like? So there's a kind of like an ROI, a return on investment around that. But there's also like, there's a, there's a filter around, I think, strategically, is this the right thing for the brand and operationally? And I think all of these things come together. And I think as a, as a business, yes, you always want to be focused on, you know, making money and being more streamlined and being more profitable, but not every decision should always come down to dollars and cents.

22:46You know, there's something around, you know, if you can improve things massively financially there's probably like an implicit cost to that something strategically could be it could be profound and it costs a little more money so we need to like look at a lot of it and we've got shops that are a bit more easy to sort of test in than others but and then you know we're forced to prioritize what do we want to try i think you you want to strike the right balance of testing the right handful of things every couple of months without coming across too unfocused and throwing too much, you know, mud against the wall.

23:22But I think the point being that if you choose and you filter the right initiatives, you don't need too many to work. And, you know, if you look back, I think over one to two months, they don't necessarily make a big difference. But if you step back over the years, the compounding effect of initiatives laid upon initiatives upon initiatives, you know, ends up taking you to a very, very different place. So I think we've seen great continued gains across the business as we just get smarter and better. And I think the right businesses, whether it's physically or online, it's where you can take insights, test and learn them and roll them out.

24:03And the speed with which you do that and keep compounding on that is what's going to ultimately create a stronger competitive moat over the medium term. And what are your metrics? Customer satisfaction, repeat? Like how do you measure success? Yeah, I think it's, you know, a lot of it is actually, you know, it's customer satisfaction and it's retention. And again, I think there's one thing that for us, and this is sort of, I think, answer that in the context with a lot of things, heyday just knowing we're quite new to the space and doing things very differently, there's always the challenge for us of like, where do we anchor in industry conventions with what we're doing versus where do we actually step back, break away and do something fundamentally different.

24:49One thing that we didn't like about the category was it was a very, very icky experience when it came, you have a great facial, you check out and this pressure to tip and this pressure to buy products could really, really take away from what was like a relaxing, you know, relaxing 50 minutes. So where I'm going with that point is I've seen other brands that are focused on like maximizing the spend of the client in that day. That's not how we operate at Hay Day. And maybe we're leaving a few dollars on the table as a result of that, but I'm interested in people coming back every single month. So the more you can wow them with the experience or like little surprise and delight in the moment, I'm less focused on whether they buy one product, two products, three products, or no products because, again, if they come back, they're going to even flow and buy products as they need.

25:41So we're focused more on longer term and actually creating a new routine. So our metrics tie back to that end goal. So tell me about having an in-person business model that went through COVID. Like how did you pivot? What did you do to get through COVID? Like how many stores did you have at that point? Yeah, COVID, I mean, COVID was an incredibly difficult period for us. We lost, you know, 100 % of our revenue overnight. Rather ominously, we closed our shops on Friday the 13th of March. Oh, God.

26:32which was yeah which as I look back was surreal no for us it was it was a really difficult period Natasha we were in obviously in a category where we probably couldn't have been in a worse category than other businesses we had 11 doors at the time and we're operating in New York Pennsylvania and California and our New York doors were closed for eight months our Pennsylvania door for 14 and our Los Angeles doors for 16. So we essentially reopened the business in mid 2021.

27:16My co-founder and I, we had a moment I think it was the last week of March and including including our team members in the shops and our support office, we had around a little under 500 team members. And we had a week where we literally had to let 488 go. And as a founder, doing that over Zoom and communicating was actually, I think, one of the hardest things we've ever needed to do. You know, we spoke with our investors. It was one where at the time we weren't sure how long we were going to be closed for, but the decision was made pretty swiftly on, let's keep sort of a lean team. You know, the silver lining here is we've got the opportunity to correct five years of mistakes and institutional learnings and things that we wish we'd known then.

28:12So we had a team that very quickly actually got to work on things with the outcome being, hey when we open we're going to be like leaner smarter stronger better so we're going to come out of the gate strong so we um i mean we changed booking platforms there are a lot of shop protocols that i think over five years you just you end up adding to things um and so we we we skimmed we exactly went back to basics you know less is more we we upgraded our training materials We improved our third-party product curation, you know, our facial protocols. We actually worked through a new membership program that we wanted to be far more, you know, user-friendly and compelling for our clients.

29:00So a lot of great stuff that we did. We actually launched essentially a Hay Day University, so like a digital school for estheticians. so we could keep them engaged and learning and growing when it was sort of tough for anyone to be working. So, you know, as a result, the businesses actually came out stronger and our metrics post-COVID are fundamentally superior to our metrics pre-COVID. You know, for us, it was still like a, it was still a long, it was still a long burn when we opened. We weren't one of those businesses that just like yo-yoed back to immediate pre-COVID levels. It was just, yeah, it was tough.

29:43Yeah, we had that, but we also had, you know, a lot of our estheticians were still getting paid by the government. So it wasn't as easy to get people back to work. So I think it generally took us probably a full 12 months to go from truncated four-hour, four-day-a-week opening up to seven days a week. So, but, you know, we got there. we're now back in sort of above pre-COVID levels with fundamentally superior metrics. But I'd say we're better for it. And there's a lot you can look back on as a CEO and I think be thankful for in terms of what it needed to do for difficult decisions, for quick decision-making, for constituent alignments.

30:29But it was, I think, very, very difficult when we had no idea how long we were going to be closed and what the world was going to look like when we opened. I think there was a lot of questions around what consumer behaviour is going to remain unchanged, what's going to shift, what's going to move around. So I was fundamentally bullish, but you never really know. And investors, et cetera, were patient? And our investors were great. I think, you know, we got some, you know, we got some PPP loans. We got some ERC loans. You know, we got things that, you know, those programs were established exactly for companies like ours that needed the support.

31:19And, yeah, our investors have always been great. I think supporters of our strategy. So there wasn't so much of a pivot with us. I think everyone bought into the fact that we are a very special, like, in-person physical service, and that's what our brand is built around. But you just sort of got to zoom up and look at it with more of a medium to long-term lens. Yeah, a belief in the future. And then how many do you have now? Because you do a franchise, a mix of owned and franchise. Yeah, correct. We actually made the strategic decision of franchise before COVID. So before any of this happens, and it's always interesting how you evolve as a CEO, Natasha.

32:02I think if you got me back in 2015 when we opened and said, you're going to franchise, I would have said, absolutely not. Upon reflection, knowing we're just so people-centric as a brand, and I think just seeing other brands that sort of had expanded across the country, quality control is actually the biggest issue. and I think when you actually franchise, you've got partners that have got an investment in the business. They've got skin in the game. Skin in the game, yeah. So no pun intended. But they care about the team. They care about the culture. So you're actually getting a fundamentally superior team member experience, being put in like client experience.

32:42And I think there's, we never wanted to be one of those brands, Natasha, where you could visibly know if a door is sort of corporate owned or franchise owned. So, yeah, we're pretty split today. I think we're a little under 50 locations across the U.S. Yeah, amazing. What about the kind of, yeah, the kind of state of business and how you run businesses? Obviously, you know, I'm sure, I don't know what is going on with Hay Day, but, you know, So many founders are realizing that to actually scale these days and grow and achieve valuations and investment, the ballgame has changed. What's your thought on this, especially, I assume, coming from a finance background?

33:36It's interesting seeing the kind of market change in this way. Yeah, I think it's different things for different businesses and different categories. and what works for us may not work for others. I think one thing for the CEOs and founders is

33:58I think you do need to know the role you play in the food chain and for what period of time. I mean, I think I've seen, I think founder hubris is real. And I think one thing that actually has changed, I think since I've been an entrepreneur versus today is the bar for executing Natasha has never been higher. So I think the ability to play the small company get out of jail free card, I think is getting harder and harder and harder. And I think there's no substitute for the founder's vision, like the entrepreneurial passion. And, you know, you're wearing different hats and zero to one is very different from when you're going from, you know, 10 to 100.