Disrupting a category and building sustainably with Eli Halliwell, CEO of Hairstory
“I think you can use lots of examples, Google being one of them, of the first to market not being the winner. There's a bit of a false paradigm there. Take your time to really get your product right. If you have an amazing product, you can bring it to life and it can win in the end.” - Eli Halliwell
We recently spoke with Eli Halliwell, today the CEO and Chairman of Hairstory. He notes that his journey might resemble a “squirrelly road map” if you didn’t know him, having spent over 25 years building consumer businesses. His experience includes co-founding a consumer venture-backed technology startup (iMotors.com), building a growth business (Bumble and bumble) and re-energizing a turnaround (Jurlique). Prior to co-founding Hairstory, Eli spent five years investing in global consumer companies at D.E. Shaw & Company, a $50+ billion global investment and technology development firm. The continuity in his story comes from his desire to create and to build the life he imagined. In this conversation we learn about how his toughest lessons guided his current success.
In conversation with Eli Halliwell
On disrupting the business of shampoo
Hairstory’s core product New Wash has been called “cult shampoo”, which is only inaccurate in that it is not technically a shampoo. Hairstory is out to simplify the way we care for our hair. For one, It is not sold by distributors and instead partners with hairdressers to bring them back into the haircare business model as trusted consultants for consumers. Direct to consumer sales are online and offer a flexible subscription model. The business disrupts the idea that different types of hair need different products, instead they offer just three cleansers that are designed to be used less frequently than traditional hair products and a limited range of styling products.
So why take on shampoo? In Eli's own words:
One of the things that I've loved about hair from the beginning is that it’s always been a very insular market. It doesn’t have a million Standford MBAs going into it, you have L’Oreal, P&G, and some premium brands. So it seemed to me a good place to be.
I remember the exact moment I became very passionate about sustainability.
I was born in Vermont and my parents were hippies that lived on communes. In 2004, I’m in New York and I read a headline that said, ‘Walmart becomes the largest retailer of organic milk.’ To me, that was mind blowing. It meant that this sort of weird movement that I've been part of as a kid —eating all of our food from health food stores— was now going mainstream. I had little doubt that the world of sustainability could happen in beauty and in hair. - Eli Halliwell
Hairstory’s model is built on support for independent hairdressers’ retail business. They operate a commission plan that includes in-salon sales and online sales, including subscription refills. Where most professional hair brands are leaving salon distribution behind, Hairstory has modernized it. Eli shared why this was important in his conception of the business:
“I found a business opportunity that the entire industry was running away from and it was an industry I knew really well. I didn’t think the salon retail business model needed to be abandoned. It seemed crazy, isn’t there a way for hairdressers to play too?”
His life outside of work informed his goals for Hairstory.
“The real impetus for me is that I wanted to create something that would enable me to control my own future. I wanted to be in a position whereby I would not be dependent on any large organizations, nor their ability to navigate a crazy world. So I felt like if I had a good idea, I could attack it, then I could essentially give myself the ability to live my life and support my family and not have to worry about what else was going on.”
Why Hairstory initially avoided institutional investors
Eli spoke about his first business venture during the dot-com bubble in the 90s. It was an online used car retailer called iMotor that was funded to the tune of $150 million. Investors that Eli knew well and admired were funding a rapid expansion, so much so that they branched out across the country quickly with the assumption that the money would continue to be available. Of course, as we know, the bubble went bust and previously enthusiastic investors put their hands back in their pockets. The company folded and Eli returned to Bumble & Bumble. He can now point to Carvana, which has a very similar, if not the same, business model as iMotor and today is valued over $24 billion, to see what iMotor could have been.
So what did Eli learn? He shared:
It taught me that even the smartest, best-intentioned people could make bad decisions and push the business in ways that it wasn't ready to be pushed. So when I started Hairstory, I didn't want to be beholden to investors to the same degree that I had been previously, even those that I consider great friends.
I felt confident that my ideas overall could be good. I didn't have the confidence that I could execute them within the required timeframe, nor that the first execution was going to work. I knew that I would need time to figure it out. So when I started the business, I raised money from friends and I structured it so that I had control. I told all my friends: ‘It may be that we never sell this business and it just generates cash and you get dividends for the rest of our lives. And that needs to be okay with you.’
From the beginning, I set the goal of never needing to raise another dollar. I've figured out how to keep my expenses really tight and figured out how to generate cash. Because, in the end that is exactly what businesses exist to do.
Operating this way meant that Hairstory didn't grow as quickly as venture-backed companies might. Eli shared:
“When we had all this growth going on, my software started to break down and money had to go into rebuilding infrastructure. Then when we launched, I had other product ideas but I needed to invest in inventory. I couldn't hit the pedal as hard on growth.
His advice on institutional investment
“If you can, avoid it. There's a huge mismatch of incentives between venture capitalists and entrepreneurs. If you are going to take VC money, then take the money and assume that it's the last money you're ever going to take.
Try to negotiate a deal where you have a lot of control and say over the execution and operation of the business and make that money last until you are cash flow positive. The game that they like to play is you just need to get to the next round. And then...you just need to get to the next round. Don't play musical chairs. At some point the music will stop. Precariously, where you are in the fundraising cycle will completely determine your fate.”
While raising $5 million— the amount raised for Hairstory— from friends and family is not something everyone can do, Eli emphasized reaching a point of earning profitable sales before scaling.
“It might mean that you don’t have the luxury of hiring lots of people, so some things will be done subpar. You just have to be your own swiss army knife for a while. But you will know the ins and outs of your business. And when you are profitable, you’ll have some options when someone approaches you to invest.” Eli said no to 15-20 proposals before saying yes to Summit Partners. “You won’t have to hand over the keys to the castle at that point.”
Sustainability in business
Concern for the planet and for our health is at the core of Hairstory. Asked about sustainability in business, both in the practice of product development and in workplace culture, Eli spoke passionately about not taking shortcuts in developing the product, to create something that provided the end value it was designed to.
While working with Estee Lauder, his attempts to change ingredients and packaging of their products to be more sustainable were promptly shut down. ”When I looked around at what was actually happening, so much of it was outright greenwashing. Organic shampoo is a misnomer, it doesn’t exist.”
He further explained, “you need to have a product that people want because they want the outcome. The benefits of sustainability—being natural and better for the world—are what gives the customer permission to feel good about spending their money with you. But you can't rest on that alone. It can't just be that you're mission driven and therefore people should give you money. It's that you have something that people want and value for itself.”
As for culture, Eli shares the Hairstory ethos: “we have a culture of sustainability and what that means first and foremost is that we exist to self-sustain. We aren't just growing for the sake of growth. For a lot of people, that's hard to get their head around. It’s not what they want. They want to be part of the rocket ship. Great, go do that somewhere else! There are many evenings that I need to work, but the work is not the purpose of my life. I want to surround myself with people who have other things in their life too, who are happy and well-rounded. So I look for that when I'm looking for people to bring on board, people for whom work is not the sole motivating purpose of their life.”
On the intersection of diversity and sustainability
“An ecosystem needs diversity to survive. You can't be a sustainable business and have everybody think the same and have the same background and be the same age and love the same people. You need to have diversity of experience, perception, and skill set. You also need to have a diversity of personality and skill set. What that means for me as a leader is that I have to be willing to create a culture where everyone is able to raise their hand and say: ‘that doesn’t make sense to me, I don’t understand.’ It means for me to listen to them, to make them feel heard and to process what they’re saying. Because there's no purpose in having diversity if you don't have inclusivity.”
Want to hear the whole conversation? Watch the replay here.