Pando

Birchbox lays off 15% of staff, citing funding environment and a need to rebalance the company

Founder Katia Beauchamp tells Pando: "It’s 100% the right decision for the company."

By Sarah Lacy , written on January 29, 2016

From The Lessons from the Trenches Desk

Today is one of the hardest days of Katia Beauchamp's professional life so far. She has just laid off 15% of her employees at Birchbox and is temporarily suspending its operations in Canada.

Welcome to the agony of 2016.

Birchbox is growing, Beauchamp says she’s never been more bullish on the company’s future. Subscriptions are still growing, and orders of full-size products have doubled year-over-year.

Sound like the kind of BS founders say when they have to do layoffs? Consider this: Its last venture round was closed nearly two years ago and at $60 million, it was hardly a mega round. And it was only the company’s series B.

The numbers Pando alum Erin Griffith reported at the time:

The New York-based startup sells curated monthly boxes of beauty samples for $10 each, while offering full-sized versions of the products on its e-commerce site. In just 3.5 years, Birchbox has grown to 800,000 subscribers, which equates to $96 million in annual sales. Add to that the fact that 30% of the company’s revenue comes from sales of full-sized products, and Birchbox is making at least $125 million per year. (The company also makes money selling men’s boxes, but it hasn’t released subscriber numbers.) Birchbox has swelled to 250 employees and worked with 800 brands. All of that, with just $12 million in venture funding. 

Birchbox has always stood out from the pack by being extraordinarily lean: Whether that was compared to the larger subscription commerce trend (most of which has since died), ecommerce in general, or the landscape of megadeals in the last few years. At a dinner in New York in 2012, one investor, Ben Lerer, challenged Beauchamp on why she isn’t more aggressive, given the track record for always growing faster than plan. “Take some more money! Grow faster! Be more aggressive!” he exhorted.  [Disclosure: Lerer Ventures is also an investor in Pando.]

But that has never been Birchbox’s style. And it’s a big reason it’s survived the subscription commerce and ecommerce gauntlet. Even its move into brick-and-mortar stores has been gradual. It opened one in 2014 in SoHo and one small one in DC since.

And, Beauchamp says, the downturn is very much a tech and public markets downturn, not a consumer one. “The consumer is feeling good,” she says. “We are having a good start to the quarter.”

I give all this context to make the point: Even Birchbox, a comparatively conservative company that is still growing and has an all-star rosters of existing investors is having to take these measures in 2016. If your startup hasn’t yet, why not?

I talked to Beauchamp exclusively and at length last night about the move. She’d just put her young twins to bed and was sniffling from a cold. She was also clearly distraught.

I’m not surprised. When we had lunch several years ago, she said that while she loved Birchbox the company and was certainly grateful to the customers who pay them for monthly beauty delights, it was her team that she really adored. I rarely have heard a CEO say they love their employees more than their company. Her loyalty to them, her gratitude for them working for Birchbox even when things were surging was palpable.

There are two types of CEOs, not just in tech but everywhere. Those who are primarily feared and those who primarily loved. Or as researchers have described it, it’s the difference between projecting “strength” and “competence.”

Amy J.C. Cuddy-- the woman who first told you to pose like Wonder Woman to change how people relate to you-- has studied the interplay of the two and found people assume if you have one you lack the other. IE: If someone is so competent, why do they need to be nice? And that’s why you get a lot of asshole founders strutting around pretending they are the next coming of Steve Jobs.

But Cuddy has further found that warmth is more important for leadership. because it builds trust. Fear on the other hand can undermine creativity and problem solving.

Beauchamp has warmth in spades. What weighs on her the most, she says, was that the company was doing well. It simply needed to prepare for a funding climate that stays bad for… God knows how long. “It’s really hard to think that the people who built it and got us to this very important inflection point, that were so critical to the success and realizing this opportunity…” she trails off. “I feel so lucky that people came to Birchbox and brought their talent, and I would be devastated for anyone to think I took that lightly.”

She continues: “It’s 100% the right decision for the company. The way I rationalized it is there is no great company that hasn’t had to go through something like this. I buy the benefits of forced discipline. But there’s no way to thank the people. No matter what you say, no matter what you do, you don’t seem grateful, and I feel so grateful.”

It isn’t just about the funding climate and the uncertainty over how long it’ll last. Although Beauchamp won’t comment more broadly on the sector, part of the concern has to be the category Birchbox is in. Commerce is woeful, and let’s remember, most of the people writing the checks are men. Birchbox isn’t seen by a lot of male investors as a company that makes women feel beautiful, it’s a frivolous make up company they’ve never totally gotten. Beauchamp will say this: “It’s easy to underestimate what we do. There’s no such thing as a beauty emergency. But it is a category that elicits so much emotion.”

But Birchbox also needed to rebalance where it was spending its resources. It found product/market fit so quickly, Beauchamp says, that it hired heavily around the subscription product. Increasingly its mobile apps and mobile Web are important channels, and its stores seem promising. Birchbox isn’t planning any huge roll out, but it will add more stores, she says. And likely, in markets we don’t expect where their data tells them there’s a big Birchbox following.

“I was in commercial real estate finance. I saw the impact that can have on a company,” she says. “We are going to be opening more retail stores but by no means are we doing an aggressive market roll out.”

One place they are cutting back is Canada, where they are “pausing” operations. “Shipping is very expensive and given the fundraising environment we wouldn’t be able to invest in that business the way we’d want," she says. "There is so much opportunity in the US, we decided it’s better to pause it. We do think long term it’s a really interesting opportunity. It’s just going to come down to discipline and focus.”

Given the changes, she says there’s no immediate need for the company to raise capital in 2016.


At the end of our call I ask whether she wishes she could go back in time six months and raise a mega round. She answers quickly and decisively: “No. I’m really proud we’ve built such an incredible and large company efficiently. This is a really important part of our story and our journey. No regrets.”

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Beauchamp also issued the following formal statement about the layoffs:

Today I made the difficult decision to lay off 15% of our staff. In five years, we have built an immensely successful business and achieved rapid growth - and these people helped create Birchbox as we know it. They are our friends and we will always be grateful for their invaluable contributions. But we have learned a tremendous amount about what we need to do to win in the beauty category. The cuts made today will allow us to reinvest in our biggest opportunities and grow even more quickly in the future. We have a clear understanding of how we can streamline our efforts and operate more efficiently.

Our vision for Birchbox has always been to build a standalone company, and today’s market demands that we reach profitability this year. We’re laser-focused on our customer experience and continuing our mission to change the way people discover and shop for beauty. We are hitting all of our growth goals and expect to nearly double our full-size sales, while still experiencing significant growth in subscriptions in 2016. We will do this as a leaner, stronger and more resolved company.

For all those impacted in this reduction there is no thank you that can properly convey the depth of my gratitude. We will work harder than ever to honor everything you have accomplished here at Birchbox.