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Birchbox: Leveraging the College Experience to Write a Business Plan and Launch a Winning Start-up Web: www.birchbox.com Facebook: Birchbox Twitter: @birchbox Bruce R. Barringer, Oklahoma State University R. Duane Ireland, Texas A&M University Introduction The College Experience Katie Beauchamp and Hayley Barna met on their first Beauchamp and Barna quickly became friends. They day at Harvard Business School. They volunteered to were also in the same MBA cohort and took many of their co coordinate a spring holiday for themselves and 50 of classes together. The idea for Birchbox emerged grado their classmates. Through the experience they realized ally. One class was particularly instrumental. It was a dass that they worked well together as a team, but at that on disruptive innovation taught by Harvard professor time id not ht of co-founding a bu Clayton Christensen. The class challenged thes That al changed just over a year later, when Beauchamp to think of a big idea that's an industry game changer and Barna launched Birchbox, a beauty samples sub Beauchamp and Barna's first de concerned the beauty scription service that now has over 400.000 monthly industry, which hadn't experienced significant innovation Subscribers for many years. A personal dynamic ao nudged them Birchbox Co-founders Hayley Barna and Katie Beauchamp towards a business idea in the beauty industry. Barna's straight to the sources. First they built a prototype of the best friend, Molle Chen, was a beauty editor Beauchamp box in which they would send the monthly samples and would notice that Bama always had the best beauty prod- determined how the samples would be presented in the ucts, and when asked where she got them, she would al- box. They then thought through the rest of the business. ways say that Chen the beauty editor) had recommended Each month, the box would contain five beauty product them. It got Beauchamp and Barna thinking wouldn't samples Information would be put on their website and every woman like to have a best friend that was a beauty YouTube channel about each product, so the customer editor and could recommend beauty products to them? could learn more about them. They would then offer full Beauchamp and Barna's thoughts coalesced in the sized versions of the products for sale. To get buy-in, they last semester of their two-year MBA program. For the cold called beauty and cosmetics companies. They first time, they were thinking about starting a business never hid the fact that they were still in college. Instead, together. They saw a vold in the marketplace ripe to they framed it as an advantage they had a readymade be siled. Companies had come up with great ways to audience of their target market right in their classes). sell many products online, including fashion, but not Incredibly several of the companies, including Benefits beauty products. Beauty products are tough to sell on Nars, and Kes signed on. Second, they created a beta line because they have a touch, try, and feel element to version of their website and incented 200 subscribers to them. To capitalize on the opportunity of selling beauty pay them $20 a month to test their concept. They used products online, and get around the hesitation that feedback from the users to improve the original Birchbox people have for buying beauty products without touch in several key areas. At this point. Beauchamp and Bama ing and seeing them first. Beauchamp and Bama's Idretaanide. They had supplies, aprofitary idea was an online monthly subscription service that ist of potential customers, results and data consisted of a small box of beauty product samples After completing these steps. Beauchamp and that qualified customers could try out. They would then Barna entered Birchbox into the HBS business plan offer full-sized versions of the samples on their website competition. They won second place, which further for sale. The major brands were already making sam bolstered their confidence. The competition provided ples that they handed out in stores. Beauchamp and tremendous exposure for Birchbox and for Beauchamp Barna decided to call their business Birchbox and Barna as nascent entrepreneurs. They met people who became advisers and mentors. The competition Last Semester at Harvard-A Testing Ground was judged by venture capitalists, and several of them for Birchbox offered the pair money. They passed on the offers. thinking it would be best to keep Birchbox lean. Rather than let the clock run out on their college experi Birchbox officially launched in September 2010. At once and then try to launch Birchbox. Beauchamp and the outset tromained loan and reflected a college stu- Barra did everything they could to leverage their college Gent's lifestyle. After graduation, Beauchamp and Barna status. They negotiated with their professors so their moved Buchbox to Brooklyn to be closer to their suppll final project in each class would be Birchbox. They also ers. Their first office was unpretentious and had IKEA fur used their student status as a way of getting their foot niture Beauchamp and Bama lamed many lessons the in the door with suppliers and customers. For Birchbox hard, and sometimes fun way. For example, when they to work, Beauchamp and Barna had to answer three made their first product video they tried to recruit volun- fundamental questions. First, would beauty brands work tors in Union Square (a popular area in Manhattan). They with them, in regard to providing samples7 Second soon found that it's impossible to get busy New Yorkers would women pay for curated boxes of samples? And to volunteer so they along with a couple of early employ third, would samples drive full-sized purchases? The only es dressed up and starred in the video themselves. By way. they figured, to answer these questions was to go the end of 2010. Birchbox had 10.000 subscribers Each monthly Bechbox for Women includes a small collection of high-quality beauty grooming, and lifestyle product samples. The product samples are similar to the ones shown here. continued its staple women's subscription service. New markets may be more difficult to grow. For example, the num- ber of products and product samples made for men's grooming and lifestyle supplies is much lower than those made for women. It may also be difficult to find as large a following for products like home decor as for women's beauty suppliers. Another challenge Birchbox faces is growing competition. A number of start-ups have replicated Birchbox's monthly subscription service for beauty product samples for women. While Birchbox remains the clear leader in this space, the number of competi- tors it is attracting is somewhat worrisome. Interestingly, while it doesn't directly impact Birchbox's business, the company has also inspired a wave of companies selling monthly boxed products in almost every conceivable area, including fishing, food, crafts, kids' toys, products for dogs, and wine. Birchbox Today Birchbox today is operating on all cylinders. The com- pany has 400,000 monthly subscribers. Its monthly subscription service for women, which costs $10 per month, is much the same as it was when the company originally launched, except that subscribers now fill out a beauty profile and several versions of the monthly box are sent out. In 2012, the company launched Birchbox Man, a $20 box filled with men's grooming supplies and lifestyle products. It also started testing a limited edition "home box" for $58 a month that will include home d- cor products and items such as seasonal napkins and decorations. In September 2012, Birchbox acquired JolieBox, a Paris-based competitor. The acquisition will allow Birchbox to more effectively enter European markets. Along the way the company has grown to 140 employees and raised almost $12 million in funding. The company's performance metrics are also strong. The number of monthly subscribers in all of its categories continues to grow. More than half of its monthly subscribers make purchases from the firm's e-commerce store, and the e-commerce store now rep- resents a quarter of its revenue, Birchbox's online store even attracts business from nonsubscribers. About 15 percent of the company's orders come from customers who don't get the monthly box of sample products. Birchbox's model is also working out for its suppli- ers. Traditionally, beauty suppliers have tried to acquire customers by handing out samples at their counters and in other parts of stores and malls. Birchbox's customers, in stark contrast, actually pay to be acquired through the monthly subscription service. They in effect opt-in and explicitly want to be sampled. When Birchbox sells a full-sized version of something that was sampled through its subscription service, it shares the revenue with the supplier Challenges Ahead Despite its success, Birchbox has significant challenges It may at some point plateau in terms of subscribers for Discussion Questions 1. How effectively do you think Katie Beauchamp and Hayley Barna used their time in college to advance their business idea? 2. In what ways is Birchbox's business approach a win-win for both its suppliers and its customers? 3. How was writing a business plan and preparing for a business plan competition helpful to Katie Beauchamp and Hayley Bama while Birchbox was still in the planning, testing, and prototyping stage? 4. Going forward, what are the most serious challenges facing Birchbox? Which of these challenges do you believe is the most threatening to the firm's suc- cess? Why? Sources: Birchbox home page, www.birchbox.com, accessed March 1, 2014. A. Groth, "Exclusive Q&A: Birchbox Co-Founder on HSB and the Advice They Got from Investors." Business Insider, www.businessinsider.com, acessed March 1, 2014; A. Dizik, "MBA Enrepreneurs Think Outside the Box for Beauty Business." Financial Times, March 3, 2013; T. Baldwin, "Entrepreneur's Corner. Birchbox." The Wharton Journal, February 28, 2014 1.0 Summary of the case