5 Lessons from The Honest Company’s Strategy & Growth
If you are a new mom and are shopping for diapers or baby wipes that are not made with harmful components you might turn to The Honest Company. The consumer goods company is the brainchild of actress and co-founder Jessica Alba. Alba founded the company a decade ago in 2011 and it is one of the first direct to consumer companies to have widespread success.
With sales in 2020 of $300.5 million The Honest Company is a good example of how to achieve topline growth. If you are curious about how The Honest Company got started and what it did differently to set it up for success then consider these five lessons.
1. Never underestimate the power of an idea. How many times has something irritated you and then you had a great idea for how to solve the problem? That’s all it can take to put a billion dollar idea in motion. In 2008 Alba was washing one of her baby daughter’s onesies when she broke out in a rash. She was deeply worried that if the detergent she was using could cause her to break out then what harm could it cause her young child. “I was thinking, what if my baby has a reaction and I don’t know? What if her throat is closing? I had all this fear and anxiety because I was always so sick as a child,” says Alba. After doing some research Alba realized that even ingredients called fragrance can be toxic.
Realizing that so many of the products we use on a daily basis can be harmful spurred Alba to create The Honest Company. “I wanted safe and effective consumer products that were beautifully designed, accessibly priced, and easy to get.”
2. Find the right partner. When thinking about the best people to partner with to launch The Honest Company Alba didn’t want to work with just anyone. She wanted to ensure that before embarking on this adventure she partnered with people who had the experience she lacked.
At the time Brian Lee, co-founder of ShoeDazzle an online shoe subscription service was among few people who had launched a monthly online subscription business. “The only way I could create my subscription service was to work with the guy who created the business model,” said Alba. Alba’s husband who is friends with Lee introduced the two of them. Alba pitched the idea for The Honest Company but Lee passed on it.
Instead of giving up or seeking partners with less experience 18 months later Alba pitched the idea to Lee again. This time the timing was right. Lee and his wife had had their first child and his wife was obsessively searching for cleaning agents with less harmful ingredients. "I had the epiphany that she [Alba] was really onto something after I had my first child," said Lee. "You want to do everything to keep your child healthy and safe." This time Lee got it and decided to join The Honest Company as a co-founder and CEO.
Working with the wrong partner can break the best business idea. Partnering with Lee undoubtedly helped Alba to avoid countless mistakes that Lee likely made in previous endeavours. Lee then brought in Sean Kane an executive from PriceGrabber.com a price comparison shopping site to be another co-founder and chief operating officer. Alba didn’t stop there she expanded the founding team even further to include Christopher Gavigan, who was the CEO of Healthy World Healthy Child a non-profit organization. Gavigan became co-founder and chief product officer. It took Alba three three years to assemble this team.
Having the right partners also helps you to be taken more seriously by venture capitalists. Alba spent three years trying to get funding for The Honest Company before Lee, a familiar face in Silicon Valley, joined the brand and started to accompanying her at pitches. “I think when you walk in with Brian Lee, you’re pretty much golden,” says Alba. Within three years in business The Honest Company was able to raise close to $100 million. Without the right partners The Honest Company could have easily died an early death as many celebrity brands do.
If you look at other successful digitally native brands you will also notice that some of the most successful ones are founded by people with ties to other successful brands. Men’s shaving company Harry’s was co-founded by Jeff Raider who also co-founded Warby Parker. Away, the luggage company, was co-founded by Jen Rubio and Steph Korey both of whom were early Warby Parker employees. You may not have contacts at this level but we all have choices about who we decide to let into our lives and picking the right people to do business with matters more than you realize.
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3. Get in early. The best time to launch a new business isn’t too long after you come up with a great idea. That doesn’t mean you have to start today because as you can see with The Honest Company it took time before Alba’s idea got off the ground. But having a first mover advantage matters. Think about someone who got serious about social media a decade ago. They will tell you that it was much easier to build a following ten years ago than if they were starting today because there is much more competition now.
While non toxic and natural products are on trend today a decade ago they weren’t. That’s why Alba started The Honest Company. “I realized that if I had difficulty finding non-toxic products for my life and my family … then I wasn’t the only one,” says Alba. "I wanted clean, safe, effective products that were affordable and beautifully designed, and I couldn't find that in the marketplace ... There wasn't really a family brand that spoke to me as a young mom," says Alba. That gap in the market is also why The Honest Company’s sales took off so quickly. The Honest Company made $10 million within its first year of selling products and within three years sales reached $150 million.
Increased competition today is part of the reason why The Honest Company’s sales aren’t materially different than what they were five years ago when they were just over $300 million. If The Honest Company didn’t have a first mover advantage we might not be talking about the company today.
4. Determine the right product to launch with. Many digitally native brands launch with one hero product. Allbirds launched with just one shoe, The Wool Runner. Casper launched with one mattress model but The Honest Company decided to launch with 17 products. Alba wanted to be a lifestyle brand and to do that she wanted to start with more than just one hero product. “Everyone I approached was skeptical. There wasn't one person who said, ‘yeah, that can happen,’” said Alba. “I heard ‘just do one thing really well and then you can expand’ a lot. But I wanted this to be a whole lifestyle brand.”
There is some truth behind launching with a narrow product range. It allows a company to focus. Instead of a new company running in a million directions everyone is focused on the same thing. A lack of focus is almost always one of the things that brings a company down. When Steve Jobs came back to Apple in 1997 to turnaround the company one of the first things he did was slash the number of products the company was working on so Apple could work on just four core products. Determining the right number of products to launch with is one of the most important decisions a startup has to make. Launching with a broader product range likely worked for The Honest Company because it had the right people in place to execute Alba’s vision.
5. Find the right way to scale. The Honest Company started out with an eCommerce subscription model where it sold a diaper bundle as well as a bundle of skin, bath and household cleaning products. But like many digitally native companies The Honest Company recognized to grow it had to meet its customers where they are and the vast majority of retail sales happen offline (only 12.5% of retail sales in the second quarter of 2021 in the United States were made online).
Seeing the writing on the wall The Honest Company started selling its products in Costco in 2013, in Target in 2014 and on Amazon in 2017. “It’s really important to us to drive accessibility in the market and the best way to do that is as an omnichannel business,” says Nick Vlahos, The Honest Company’s CEO. Selling on Amazon was seen as way to make the brand more relevant to online shoppers. Today The Honest Company sells 55% of its products online and 45% through retail where you can find the brand’s products at 32,000 retailers.
Although Alba and her co-founders built a company with a market valuation which at times has been over a billion dollars (The Honest Company’s current market cap. is $821.5 million) the company has never made a profit. In 2020 the Honest Company lost $14.5 million and in The Honest Company’s IPO prospectus it says: “we have a history of net losses and we may not be able to achieve or maintain profitability in the future.”
Many of the most successful direct to consumer brands are great at acquiring new customers and generating sales but they struggle to make money. This can be for a variety of reasons including high marketing costs, high logistics costs or high costs related to customer returns. Amazon is profitable now but it makes most of its profits from Amazon Web Services, a non-retail business.