How e.l.f built a billion dollar beauty brand - Kory Marchisotto

0:06Ladies and gentlemen, welcome back to Uncensored CMO. Now, we're talking about cosmetics, but not any cosmetics. We're talking about a billion-dollar turnover brand that is smashing all the records and really taking over. So I'm delighted to be joined by Corey, the CMO. Welcome to the show. Thank you for having me. So I need to know, most importantly, how popular are you right now with your daughters? Well, I was going to say this, right? I am insanely popular, right? Usually I go home, right? And it's usually, so, Daddy, who have you had on the show? And I mention the name. Who in my world would be somebody?

0:36Oh, my God, I've got this person or whatever. and they go, who's that? What have they done? And I mentioned you're coming and I said, Elf. And they're like, oh my God, meltdown. And then I got like about a five minute tutorial and go, oh daddy, you do know my mascara and my gloss. So literally, yeah, it's everywhere in my house. So this is great. So thank you very much. Well, we appreciate your girls and we appreciate their loyalty to Elf. And there's them and all their friends. We're happy to support their makeup journey. And there's a lot of them, which is great. Which is why you're doing so well, of course.

1:07So recently hit a billion turnover and valued at over 10 billion now. And that's all been achieved in the last 20 years, which is amazing. Now, before we come to the story, because I really can't wait to unpack it and find out about the journey you've been on, because it's been absolutely tremendous. Just give us a little bit of a background into you, because you've got some amazing experience in the beauty category. But tell everyone listening where you came from and how you got to where you are. Sure. Well, if we go back to the beginning, I grew up in New York in a small town called East Meadow on Long Island.

1:36and the job that was most pivotal to my future career was working in a nail salon. And I was working in the nail salon to make money to pay my way to go to college, which was not something that happened in my family. So my dad didn't think I should have to go to college. Why can't you just work and make money? Isn't that what people do? Why are you saving money to go to school? So in this nail salon, one of our clients was actually the vice president of sales at LVMH. No way. You picked the one nail salon with the vice president of LVMH. That's right. That is insane. And she took a liking to me.

2:14She saw that in between clients, I was studying and reading books, and she knew I was going to go into Manhattan and go to school. And when I left the nail salon, she said, when you're ready, give me a call. So I go into Manhattan. I picked Pace University because it was located by Wall Street and they had an affiliation with all the financial institutions. And I had dreams of working in a financial institution. So I started interviewing at these big financial firms and I wasn't finding a mirror image of who I was. Everything felt a little cold and sterile and things weren't being led by feelings and emotions.

2:52And it just wasn't aligning with my antenna. So I was a little bit down on things. And my dad had called me at one of these moments where I came back from an interview and my dreams were being shattered all around me. And he used to call me kid. So he said, hey, kid, what's going on? Why so down? I said, these interviews are just not turning out the way I want them to. And he said, are you ready to call Debbie Nuzo yet? And I was like, dad, I don't need your help. I got this. And of course, I needed his help. And I got Debbie's number and I gave her a call and I got my first job in beauty at LVMH.

3:27And when I had gone to that interview, I go up into the office. It's all black lacquer and mirrors. And this woman at the front desk was like snow white, perfect porcelain skin, beautiful red lips, heavy French accent. And when I walked in, the phone was ringing. She answered the phone. She goes, Parfait Givenchy. And that was it. My dreams in that moment were realized. I want that job. And I took the job. And that time, I was in the sales department. So I worked in sales operations. I was doing sales figure reporting up to senior leadership. I was doing allocation. So I got a really good backbone in numbers and sales performance.

4:09I knew I wanted to do marketing. So my second job that I took was in brand management. And I moved into additional prestige brands, spent a couple of years doing that. And then I went to Shiseido where I spent the bulk of my career working in their entrepreneurial division. So building some of the more designer, avant-garde, bold brands and businesses under the Shiseido umbrella. And I spent a long time there to really cut my teeth on how to build brands and businesses with a variety of different models. So no two days were ever the same. And I really loved this entrepreneurial vibe that it had.

4:50And that was always where my bend was. So then I went to Bare Minerals, which was their flagship brand in the US, and it was a transformation. So I spent two years doing the hardest thing I ever did in my entire life. And I really recommend that to anybody, go do the really hard things. So that when I got the call from Elf, they were in a little bit of a trouble spot. Net sales were down for the brand for the first time. They had lost their way a little bit and they were looking for a new impulse to their business, if you will. And I believe at the time net sales were like minus one. I had just come off like a minus 33 year K or so.

5:29I was like, oh, this is easy. I got this. So I got the call for the elf job. And what I saw was an incredible brand that had limitless potential that wasn't really tapped into yet. and it was going to be a matter of really awakening the sleeping giant, if you will, going back to the treasure chest and the story of the founders and the beginning of the brand and then infusing it with all the things I learned in luxury, colors, codes, cues, storytelling, emotion, captivation, compelling. So that's really what was, I was able to take that luxury training and experience and bring it to the masses.

6:12Yeah, it makes a lot of sense. You talk so passionate about doing the more entrepreneurial thing as well in your career, which suddenly all makes sense, doesn't it, when you bring that experience over. For everyone listening and watching, tell us the origin story of how Elf was created and what was it trying to solve? What was it trying to do? So Elf was started by a father-son duo, two gentlemen from Brooklyn. The son, Joey Shama, was graduating from NYU, and the dad had a dream of them getting into business together. And these are two entrepreneurs at their core. So they went around looking for a white space.

6:47they went to a dollar store they realized there were very expensive cars parked outside of the dollar store and they said okay already this is a signal there are wealthy people here so let's go inside and see is there everything that they could get or is there a white space opportunity and they recognized that you could pretty much get everything in a dollar store except cosmetics So they had this crazy idea that they could create prestige quality cosmetics and sell them for one dollar. The kicker was they wanted to sell it over the Internet. I would remind you that this was 2004. Wow. This is the 2004, which is the year Facebook launched and the iPhone doesn't exist yet.

7:34So everybody told them, number one, you can't do premium cosmetics for a dollar. It's not even humanly possible. Two, you certainly cannot sell color cosmetics over the internet. And three, even if you figured out one and two, you will never make this a profitable business. So they were born to disrupt the industry. They didn't listen to anybody. They carved their own path. And in the face of opposition and resistance and a sea of no's, they turned it into a yes, which is now a billion dollar business, as you mentioned before. And we actually just had them at our company-wide offsite and we asked them, did you ever imagine that Elf would be here?

8:18And they're like, never in our wildest imagination did we think it would be a billion dollar business. But the beauty of what they started and what we still are is true entrepreneurial spirit. Bias for action, speed, agility, nimbleness. No matter how big we are, I like to say we're still the mouse under the elephant's feet. You're never going to catch us. And break down the model a little bit more for me as well. How do they go about actually doing it? Because getting a premium cosmetic that's as good as the leading brands for that price, that's a really hard thing to do. How do they crack that?

8:52It's a tough nut to crack. I can't give you all my secrets. Without giving away the trade secrets, of course. It is a very difficult task. And the other thing that a lot of people don't know is US FDA regulations say that there are only 11 ingredients that you cannot use in the creation of cosmetic and skincare. 11. We create with a palette of minus 3 ,000. The EU is minus over 2 ,000. So it's pretty exceptional that we have a higher level of standard and regulation. So we keep ourselves to that incredibly high standard. And the key for us is redefining what beauty means, how you create a business for it, how you create a market for it, and how you sell it.

9:41So at the time, it was really all about really going direct to consumer. We're going to sell this online. We're going to cut out all the middlemen. So any of the money that would have been put in margin depletion or anything like that there, we're going to give that savings directly to the consumer. So that's always been baked into how we operate. Now, I used to work at Pepsi for many years and we obviously would do the Pepsi Coke challenge and proof, blindfold people and go, look, can you taste the difference? And seven out of 10 people would say they prefer Pepsi. So if I was to get your audience to try your cosmetics up against those premium brands that, let's face it, cost a lot more, how would they compare when they don't know which brand it is?

10:21So you just need to watch a few TikToks. I'm sure your daughters can show you how to do that. They discovered on TikTok, by the way. Just a little plug for TikTok there, but yes. So most of the community that talks about Elf on a continual basis will tell you it's better than. So it's not even equal to anymore. It's better than at a fraction of the price. So it's kind of like when you run into somebody at a party and they're wearing this beautiful outfit and they have on very expensive shoes and very expensive pants and very expensive jewelry. And you're like, oh, I love your top. And they're like, five bucks.

10:54I got it at Zara. Right. They're wildly excited to tell you that they got a smart score. That's how it is with Elf. It's this because everybody's going to tell you, oh, my God, you look beautiful. Your makeup is holding. The performance is incredible. The pigment, the color, the payoff. and they're like, oh my God, eight bucks from Elf when the prestige equivalent is$40. Who doesn't want to have a 5X less price? So we're the smart beauty score. We're for people who know and are in the know. Yeah, that's insane actually. He's absolutely right as well. I can say from first hand experience. Now, you and I were sat together, weren't we?

11:29Well, I was interviewing Scott Galloway and he made a pretty provocative statement, didn't he? In his talk with me about the era of brand is dead. Obviously, you've built up a pretty amazing brand over the last kind of five years. What do you say to that kind of accusation of the era brand is dead? You fell right into the Scott Galloway trap. I did. I know. I was going to let him have one. Everything he says is intentionally provocative. I know. I know. Exactly. And it's a great gift because it gets us all talking. It does. And it did. And it did. And we're still here talking about it. I think there's a couple of things.

12:02So where I understood him coming from the conversation was, it's the era of product. And I think product is table stakes. If you are in consumer packaged goods business, you have to deliver a differentiated product that people are going to buy at the expense of every other product on the market, or you don't get a right to exist. And Elf is the model of how we transcended product and have almost become an ideology. So if we just look historically for a second, when I joined the company five years ago, 6 % of net revenue was being spent on marketing and digital. Six. So not really much investment in the brand.

12:43At the time, we actually had - And what would the big brands do, just for comparison? If you're in the luxury sector or over 30, 35 could even go up to 40%. If you're more in the mass sector, let's say around 25 to 30. So 6 % is quite low. We were investing at that time in a retail network. So we had a little over 20 retail stores that were not really kind to the P &L. So the decision was made that this was the moment to shut down the retail operation and siphon the money into marketing to see what would happen at that stage of the brand's life cycle if we actually invested money in brand building.

13:23This is when I came into the building. So in 2019, we were investing 6%. We're now investing 25%. Okay. So over five years, we've significantly increased our marketing spend. Why? Because it's working. And the business went from 250 million net revenue to a billion in net revenue. And I think the key thing is you have to understand where you are in the life cycle and when is what needed. So I actually agree with Scott that product is critical. You see TikTok virality happening on a regular basis about the functionality of a product, the duplicity of a product, and all the different ways that people want to show you how they use a toothbrush to fill a hole in the wall, right?

14:08Or even for our product, PowerGrip Primer, for example, we see people putting in bowls and just playing with it like it's slime, not even actually putting it on their face to get the makeup benefit in some cases. So that is absolutely true. Product is absolutely key. The success over time and a brand's ability to have a rightful position for over 20 years, which is where we are now, we're just celebrating our 20th birthday, it can't just be about product. Product's not enough. You have to be able to transcend product to become a brand that people love. one of the things that I'm still mind blown by is people are inviting us as in the people behind the brand to the most important moments in their life.

14:52We get hundreds of invitations to people's weddings every week. For real. That's not about product. They're not actually inviting us and saying, can you set up a makeup table and do makeup? They're like, Elf, you have been with me through every important moment in my life. You were there when I graduated. You were there when I had my first kiss you were there i i would love you to come to my wedding that doesn't happen if you're just selling good product that's very true how do you how do you stay close to your consumer because i think this is one of the tricks here isn't it because as you scale what most companies do as they scale they bring in layers of management and they bring in process and organization and i mean i've seen it in my own career you know the closer i was to the consumer everything made sense and it seemed obvious what happened and then as soon as you build you know build complexity, it seems to go away.

15:37But what's the secret of staying close to your consumer then? So I think there's two things that I think are a forward-looking indicator of success for any brand. The first one is the distance between the C-suite and the community that they serve. The second one is the distance between insight and action. The shorter the distance, the greater chance for success in both of those cases. And I would bet on companies that have low to no distance. Elf has zero distance between our community and our C-suite, which is incredible. and also zero distance between insight and action. So when you ask the how, it starts with me.

16:13And as the CMO of the company, I personally consume thousands of consumer comments every week and not in a report. I don't want to have a relationship with reports. I want to have a relationship with the people. I want to see what emojis did they use, what color, in what context, when somebody asks them a question, how did they respond? How did the lovers communicate with the haters? What do people not like about what we're up to? And you can only get that when you're in real time operating in the conversation as people are talking to one another about your brand. So I personally consume that and I see things immediately and I will hang up and call our social media team and be like, they're all asking about Jamila Jamil's outfit.

16:55We got to tell them what is she wearing in our commercial? So I have a direct loop in the organization of my team, because I run end-to-end from concept all the way through community, where I can take an insight instantly, what somebody says about a product, likes it or don't, and bring it right back to the innovation team. Or they want to know something about marketing, bring it right back to those folks or some digital thing that's not working on our website, go right to our CDO. So the distance between me and our community is very low. And also, again, what they're saying and what we do about it.

17:29And I would take that further into our C-suite. Last week, my CFO and I both got on a Twitch live stream and 13 ,000 people showed up to hear us talk about so many dicks. And it's pretty extraordinary to have a CFO and a CMO, totally unscripted, just having a conversation with the community, reacting to them in real time. We do the same thing with our CEO. He comes on TikTok Lives and listens directly to the community. That's the reason we did bronzing drops so fast. Yes, you're telling me about this. Tell me what happened. Not many companies, certainly not many billion dollar companies get their CEO on TikTok Live.

18:13How did it come about? He's done a couple of them. And in this case, the cry for bronzing drops was massive because there was a prestige equivalent that was out in market and it created this massive trend. and everybody that couldn't afford this high price point were screaming at us because they know we're like their savior. Well, Elf will take down the red velvet rope and invite us all to the party. So whatever we would post, we posted about a mascara, they screamed for bronzing drops. We posted about our lip oil, they screamed for bronzing drops. And this was going on and on and on. We couldn't fast track the bronzing drops quick enough unless we get the CEO involved.

18:54So I walked down the hall into his office. This is a true story. Hey, Tarang, can you jump on a TikTok live with me? I'd like you to hear from the community. He goes, okay, what time? I was like, how about a half an hour? He's like, great. Jump on a TikTok live. 5 ,000 people showed up and all 5 ,000 were screaming at him for bronze and drops. He'd lasted about 10 minutes. And at 10 minutes, he goes down the hallway to the innovation team, opens the door and And he goes, make these people bronzing drops. Please. And we fast track bronzing drops and we're able to bring them to market in record time because we had the full support of everybody in the C-suite.

19:35So that is zero distance, zero. Community asks the CMO, then they have access to the CEO and they get what they want in record time. Yeah. And it's so important to bring insight into the heart of the organization, isn't it? Like you say, not through reports or outsourcing it to other people as well. Because I know some of the sort of tensions I've had in the past in organizations is, you know, seeing insight at the heart rather than kind of, you know, on the edge of the organization. How do you organize yourself structurally around insights? Well, one of the things I always love to ask folks about insights is where does it sit, to your point?

20:11And very oftentimes it sits in the COE, the center of excellence, which is the equivalent of collecting dust. In ELF, it is at the heart of everything we do. So our insights person not only strategically distills a vast amount of information, which is unbelievable these days, how much is coming at you from how many places. She strategically distills it into insights and every Monday she shares those insights with all of the business leaders. And I'm not talking about just managers or coordinators. I'm talking about C-suite executives, key leaders, and decision makers. So insights go directly to decision makers.

20:55Decision makers take it directly into action. And that is why we're able to move at such speed because we're taking it as it's happening. we're working to and our community is so funny because they'll write things like elf are you in my bathroom were you at my house last night were you at my dinner table because that that's how closely we're listening and then acting on it so quickly that they're blown away that they feel like they are actually shaping the brand because they are yeah and how do you keep that agility in terms of product development as well because you got the idea you got the feedback and now you've got to get the bronzer to market, right?

21:31How do you also deliver at speed? Because I think that's one of the challenges as businesses grow, they become much slower, don't they? And not as agile. How do you keep that agility in place? Well, the beauty of Elf is we're 20 years old and we're faster than we've ever been before. So if you have speed as a value, and for us, it's the combination of quality, cost, and speed. Those are all equally as important. If you have that as a value, if it's ingrained in every single person in the company, and then couple that with the fact that every single elf has an entrepreneurial spirit, it's actually not as hard as you think.

22:04And I want to just pause on this word entrepreneur for a minute because I think it's really important. And again, going back to our founders who were the OG entrepreneurs and how they set up this company to really be a forever entrepreneurial ship is every single elf, we call ourselves elves, every single elf is granted meaningful equity every single year. We believe that we are the only consumer packaged goods company publicly traded that offers equity to every single employee. You say everybody top to bottom in the organization. Every single employee. Every single meeting you're in, you're not in a meeting with a colleague, you're in a meeting with a fellow shareholder.

22:45That creates a passionate team of owners. And I want to actually put a numeric value on that to contextualize. Since Elf went public, which was 2016, we've granted$179 million worth of equity to our employee base minus our C-suite. $179 million to our employee base. That's insane, isn't it? You know how many employees we have? No, I don't. Less than 500. Wow. I mean, that's life-changing, isn't it? It's life-changing. Yeah. Seriously. When our CEO's number one ambition is wealth creation for his employees and their families. That creates a passionate team of owners. A passionate team of owners, one person has the capacity with that kind of energy to do what 100 people can do in another company.

23:34I love that. And I guess everyone's going to, rather than going, oh, it's not my problem, I'll pass it on to the next department. Everyone's going to go, we've got to fix this, right? Or we've got to invent it, you know, if it needs inventing. Exactly. Now, you talked at the beginning about going from 6 % to 25%. So what have you invested in that's driven the growth that you've seen today? Sure. So the first at bat was, of course, to stay digitally native. So we were the OG digital disruptor in the beauty space, and we had a lot of work to do to go deeper just in that space alone. When I started five years ago, we were a one-legged horse only playing on Instagram.

24:10So one of the key things was open the aperture and make sure that we're playing on a wide variety of platforms. So we have our primary platforms, our secondary platforms, and then our test and learn platforms. So we're in a constant state of learning, taking in as much synapses and signals as we can to figure out where's the next place we want to place our bets. If you don't have a lot of chips on the table, you have no idea where to place your bet next. So that was really key for us. Once we were able to build out each one of these platforms, completely diversify, build a wide community in a variety of places and spaces.

24:45Then we asked ourselves, what else could we do outside of our current purview that would make waves, if you will, and bring Elf to a new dimension of audiences? And that's when we decided to do our first big game ad, which is very unconventional. But when you break it down, it actually makes a whole hell of a lot of sense. Yeah. So at that time, we're a digital only brand. We were taking all of our storytelling and all of our inspiration from the TikToks that people were making about our brand. And they were obsessed with the sticky value of this Power Grip Primer, sticking brushes to their faces, books, how heavy of a thing can I stick to my face if I use Power Grip Primer?

25:25And it was hilarious. So we had this dream about turning that into a commercial. We didn't realize at that time that this commercial will go on this biggest stage that there is. So the next thing we asked ourselves, well, who's a culturally relevant icon right now in this moment that we would want to do that with. And at the time, White Lotus was at the height of its game. So we thought Jennifer Coolidge. Okay, great. Well, where could you put the stickiest star in beauty, Power Grip Primer, the stickiest cultural icon, Jennifer Coolidge, what stage would be big enough for this to make sense? We looked at the calendar and in three weeks was the big game.