Case 6.1 Birchbox: Leveraging the College
Experience to Write a Business Plan and Launch a
Growing Start-up

Introduction
Katie Beauchamp and Hayley Barna met on their first day at Harvard Business School.They volunteered to co-coordinate a spring holiday for themselves and 50 of theirclassmates. Through the experience they realized that they worked well together as ateam, but at that time, they had no thought of cofounding a business. That all changedjust over a year later, when Beauchamp and Barna launched Birchbox, a beautysamples subscription service that now has over one million monthly subscribers in fivecountries.

The College Experience
Beauchamp and Barna quickly became friends. They were also in the same MBAcohort and took many of their classes together. The idea for Birchbox emergedgradually. One class was particularly instrumental, a class on disruptive innovationtaught by Harvard professor Clayton Christensen. The class challenged the studentsto think of a big idea that’s an industry game changer. Beauchamp and Barna’s firstidea concerned the beauty industry, which hadn’t experienced significant innovationfor many years. A personal dynamic also nudged them toward a business idea in thebeauty industry. Barna’s best friend, Mollie Chen, was a beauty editor. Beauchampwould notice that Barna always had the best beauty products, and when asked whereshe got them, she would always say that Chen (the beauty editor) had recommendedthem. It got Beauchamp and Barna thinking—wouldn’t every woman like to have abest friend that was a beauty editor and could recommend beauty products to them?

Beauchamp and Barna’s thoughts coalesced in the last semester of their two-year MBA program. For the first time, they were thinking about starting a business

together. They saw a void in the marketplace ripe to be filled. Companies had comeup with great ways to sell many products online, including fashion, but not beautyproducts. Beauty products are tough to sell online because they have a touch, try, andfeel element to them. To capitalize on the opportunity of selling beauty products online,and get around the hesitation that people have for buying beauty products withouttouching and seeing them first, Beauchamp and Barna’s idea was an online monthlysubscription service that consisted of a small box of beauty product samples thatqualified customers could try out. They would then offer full-sized versions of thesamples on their website for sale. The major brands were already making samplesthat they handed out in stores. Beauchamp and Barna decided to call their businessBirchbox.

Last Semester at Harvard—A Testing Ground for Birchbox
Rather than let the clock run out on their college experience and then try to launchBirchbox, Beauchamp and Barna did everything they could to leverage their collegestatus. They negotiated with their professors so their final project in each class wouldbe Birchbox. They also used their student status as a way of getting their foot in thedoor with suppliers and customers. For Birchbox to work, Beauchamp and Barna hadto answer three fundamental questions. First, would beauty brands work with them, inregard to providing samples? Second, would women pay for curated boxes ofsamples? And third, would samples drive full-sized purchases? The only way, theyfigured, to answer these questions was to go straight to the sources. First, they built aprototype of the box in which they would send the monthly samples and determinedhow the samples would be presented in the box. They then thought through the restof the business. Each month, the box would contain five beauty product samples.Information would be put on the firm’s website and YouTube channel about eachproduct, so the customer could learn more about them. They would then offer full-sized versions of the products for sale. To get buy-in, they “cold-called” beauty andcosmetics companies. They never hid the fact that they were still in college. Instead,they framed it as an advantage (they had a readymade audience of their target marketright in their classes). Incredibly, several of the companies, including Benefits, Nars,and Keihl’s signed on. Second, they created a beta version of their website andincented 200 subscribers to pay them $20 a month to test their concept. They usedfeedback from the users to improve the original Birchbox in several key areas. At thispoint, Beauchamp and Barna had more than an idea. They had suppliers, apreliminary list of potential customers, results, and data.After completing these steps, Beauchamp and Barna entered Birchbox into theHBS business plan competition. They won second place, which further bolstered theirconfidence. The competition provided tremendous exposure for Birchbox and forBeauchamp and Barna as nascent entrepreneurs. They met people who becameadvisers and mentors. The competition was judged by venture capitalists, and severalof them offered the pair money. They passed on the offers, thinking it would be bestto keep Birchbox lean.

Birchbox officially launched in September 2010. At the outset, it remained leanand reflected a college student’s lifestyle. After graduation, Beauchamp and Barnamoved Birchbox to Brooklyn to be closer to their suppliers. Their first office wasunpretentious and had IKEA furniture. Beauchamp and Barna learned many lessonsthe hard, and sometimes fun, way. For example, when they made their first productvideo they tried to recruit volunteers in Union Square (a popular area in Manhattan).They soon found that it’s impossible to get busy New Yorkers to volunteer, so they,along with a couple of early employees, dressed up and starred in the videothemselves. By the end of 2010, Birchbox had 10,000 subscribers.
Need to Pivot
Birchbox grew rapidly from 2010 to 2016. While it continued gaining subscribers, itwas not showing a profit. In an effort to cut costs, in 2016, the firm laid off 15 percentof its staff in January and another 12 percent in June. The cost cutting measures wereprecipitated by an inability to raise fresh capital on favorable terms. In late summer of2016, Birchbox raised $15 million in a convertible note—a type of loan that eventuallyconverts to an equity stake—from its current investors. Its new business plan focusedon becoming profitable while maintaining its momentum in the marketplace.Birchbox has also shifted its business model and has broadened its reachbeyond e-commerce. In mid-2014, it opened its first brick-and-mortar store. If you arein New York City and would like to make a visit, it’s located in the SoHo district ofManhattan at 433 West Broadway. The store is packed with fun ways to try newproducts. A customer can BYOB (Build Your Own Birchbox) by picking a box and fivesamples from across categories. The store has been a success. Birchbox has foundthat the lifetime value of a customer is three times as high when they visit the store asopposed to shopping strictly on birchbox.com. Birchbox has also developed two linesof its own makeup. The first is a line of lipstick and eyeshadow, launched in 2015,created by a team of in-house product development experts, under the brand nameLOC (Love of Color). The second is ARROW, launched in 2016, a makeup, skincare,and body products brand designed to enhance natural beauty during (and after)physical activity.

Challenges and Opportunities Ahead
Despite the need to pivot their business plan in 2016, the founders of Birchbox remainoptimistic. The company has over 1 million monthly subscribers. The success of itsfirst physical location, and its ability to increase the lifetime value of a customer via thein-store experience, opens the possibility of additional locations. Current plans are toopen “pop-up” stores in select cities to gauge demand before opening permanentlocations. Birchbox is also exploring the possibility of opening stores within the storesof retail partners. The addition of in-house expertise to develop its own beauty brandspresents new opportunities. Birchbox is also considering an upscale women’s monthlysubscription box at a higher price-point than the staple $10 a month box it has featuredfrom the beginning.
There are also challenges. Ipsy, GlossyBox, and BeautyArmy have similarsubscription plans as Birchbox. Ipsy, in particular, is a formidable competitor. Startedby YouTube makeup and skincare celebrity Michelle Phan, Ipsy reportedly has asmany monthly subscribers as Birchbox. There is also a concern, shared by allparticipants in the market, that at some point the industry may plateau in terms ofsubscribers for its staple women’s subscription service. New markets may be difficultto grow. For example, the number of products and product samples made for men’sgrooming and lifestyle supplies is much lower than those made for women. This factormay limit the growth of Birchbox Man.

Discussion Questions
1. How effectively do you think Katie Beauchamp and Hayley Barna used theirtime in college to advance their business idea?
2. In what ways is Birchbox’s business approach a win-win for both its suppliersand its customers?
3. How was writing a business plan and preparing for a business plan competitionhelpful to Katie Beauchamp and Hayley Barna while Birchbox was still in theplanning, testing, and prototyping stage?
4. Going forward, what are the most serious challenges facing Birchbox? Whichof these challenges do you believe is the most threatening to the firm’ssuccess? Do you think Birchbox will have to pivot its business plan again? Ifso, what factors do you think will precipitate the next pivot?

Answer rating: 100% (QA)

Ways in which Katie Beauchamp and Hayley Barna used their time in college effectively to advance their business idea are A The idea for Brichbox emerged progressively through a university class on dis... View the full answer