This post originally appeared on brunchwork.
It’s been six years since Birchbox revolutionized how we discover new products. Since then, the beauty subscription service has grown from 200 beta users to over 2 million customers, inspired a wave of similar services known as the ”the Birchbox effect”, and gone through significant organizational transitions.
This year, cofounder Hayley Barna stepped down as co-CEO and moved to the other side of the table: investing. As an entrepreneur and now the first female partner at First Round Capital, Hayley shared her success story at brunchwork’s NYC networking event hosted at Alley.
Evaluating and testing business ideas
Great companies start with an innovative business idea.
“How do you know if a business idea is worth starting? The best test is: It’s the last thing you think about when you go to bed at night. Is it what you’re brainstorming about when you’re in the shower in the morning? If it’s more and more exciting, the more you think about it, it’s a good sign that it is worth going for,” Hayley said.
Testing will help you determine whether or not an idea is worth pursuing, she continued. “This is a theme at Birchbox: we test before we launch.”
The entire company started with a beta test. “We never actually wrote the business plan. We just got going. We wrote a one-pager and cold emailed CEOs of our favorite beauty brands [with the] subject line: Reinventing beauty e-commerce.”
As the company grew, testing remained a core principle. To prepare for the launch of a retail store, “we did so many real-life events, whether it was in our office or with our brand partners in their stores, before we ever signed a lease,” Hayley said.
Similarly, its Birchbox Man expansion started with a test. “We did a limited edition box over the holiday season in 2011,” Hayley said. “It sold out in one day. That helped us get the data that we needed to figure out whether we should expand and how to launch a monthly subscription for men.”
Maintaining focus
“In the beginning, the biggest struggle was staying focused,” Hayley said. Her team used metrics to stay on track.
“We came up with key performance indicators that mattered. Any opportunity, we judged against our KPIs [key performance indicators]. Will this grow our subscriber base? Will this help retain our subscriber base? Will this encourage subscribers to convert into full-size purchases?”
Focus became even more important as the company matured. Birchbox has experienced some growing pains this year, including two rounds of layoffs that cut across all departments.
“Hard decisions have had to be made,” Hayley said. “Birchbox had pretty astronomical growth trajectory, and now we’re focused more on profitability.”
Raising capital
Although the company raised $485 million, Birchbox struggled to find investors initially. “Investors want to give you money when you least need it,” Hayley said.
Related: What Birchbox’s VC Funding Problem Says About the Tech Bubble
Funding was more successful when “we learned to narrow our focus and talk to the right investors,” she explained.
“The best way to reach out to a VC is through a working introduction. When an entrepreneur gets introduced to me through someone that I respect and trust, that’s a huge signal.”
Whether approaching investors or partners, you must be prepared to show them why they should work with you. “Once we were in the door, we were extremely prepared. We came to those initial meetings with prototypes, as well as a pitch deck,” Hayley said. “The pitch deck wasn’t just: Here is what we are doing. It was: How can we be a good partner for you? What are your challenges? Here’s our hypothesis for how we can help you reach new customers.”