It Never Hurts to Have a Conversation | e.l.f. Beauty CEO Tarang Amin

At first, I wasn't interested in color cosmetics, to be honest. I thought there were way too many brands, way too fragmented a category, not enough product differentiation.

I've always had this other saying in my career, which is it never hurts to have a conversation.

When people are looking at opportunities, I'm looking at strengths, and driving the heck out of strengths is what I'm best at.

Sure. So, first of all, thank you for having me. I'm excited about this as well. My story is an immigrant story. I'm of Indian ethnicity. Both my parents were born and raised in India. I was actually born in East Africa. My dad used to work in Kenya. I spent part of my childhood in Kenya and Uganda, and we immigrated to the US when I was a child. And it's like any American dream story. My parents came here to make a better life for us. They worked extremely hard. My dad's last job he had, wore many hats, but the last job was selling educational publishing to school systems throughout the Virginias and the Carolinas. So he would disappear on Sunday nights, kind of do his sales route, come back Friday nights, and we really decided we wanted to be together as a family. So when I was 14 years old, my parents sold our house, took every penny we had, and we bought our first motel on Route 1 in Alexandria, Virginia. We moved right into the manager's apartment, and our business model as a family was we'd find these distressed properties, we'd fix them up, we're good operators, and we kept building that business out. But that was probably one of the most formative experiences I've had, not only as a teenager, but throughout my business career.

Mhm. Uganda was a terrible place in those days, run by a dictator who was a terrible human being, Idi Amin.

Well, you know, it was less traumatic than others because my father saw kind of the writing on the wall and sent my mom and me over earlier. So it wasn't as bad as some people experienced, where they literally were getting thrown out of the country and the panic there. So it was better planned, obviously just as disruptive. My parents lost everything they had in Uganda. Everything. They lost everything. So my dad had invested in land, had their savings. So they did come with very little to the states and make a life for ourselves. So I can relate to that part of the experience. But like I said, I think some had it much worse than we did. I'd say there was less trauma and more the shock in being in a completely different culture and a different world. There were very few people that looked like me growing up, even early in my business career. I'd probably be the only brown person in the room. And so I'd say that was more the part to get used to, of being an American but somehow feeling like an outsider. And so a big part of my, I think, professional career is making sure I gave opportunities to others that may have not felt welcome. And one of the things I learned early on, and you know, I give my parents a lot of credit, that you can be anything you want to be, you can do anything that you want to do. All it takes though is really hard work and determination, and certainly there was no better proving ground of that than the motel, because to give you a little bit more of a visual story on that, it was 1979 when we bought our first property. I think interest rates in the US were about 18%. I developed an intuitive sense of what cash flow was at the age of 14. I knew every single dollar that was coming in, every single dollar that was going out. I knew what our mortgage payments were. I knew what our expenses were. I was an incredible, fully-fledged businessman at 14 years of age.

It was by necessity, because I knew everything we had as a family was in this property. If this property didn't work, I mean, there was no alternative. So it was really about making it work. I mean, it was so funny. I later, I mean, many years later, I went to get my MBA and I learned the definition of economic profit, and I was like, you know, I actually intuitively knew what economic profit was. I got the whole thing of your cash flows and your profits relative to your assets. Any motel owner understands that, any property owner generally understands that. And so it was fabulous. I mean, at the time it was hard work. At the time it was stressful as a 14-year-old knowing that, you know, this had to work. There was no alternative. But you know, I learned so much just watching my father.

Well, my family and my parents, big believers in education. They themselves were highly educated.

Well, I think one of the things my parents instilled in me was a real sense of curiosity and of learning and the passion of learning. My dad had multiple degrees, including a law degree. He was a practicing lawyer. He himself had a tough childhood, having lost both his father and his brother at a young age. He ended up having to suspend his college studies to take care of their family farm. So their story, and yet at the same time he was still determined to get an education, to finish his studies, to learn. And they instilled that in me, that there was real power in knowledge, in learning, and that's actually the key to be anything that you want to be. And they wanted more from me, frankly, than the motel. My parents absolutely hoped I'd either be a doctor or an engineer. So I went in with a biomedical engineering major, and I don't know, about three years into it, it was my junior year, I realized, you know, I'm just not intellectually as interested in some of the subjects. So much to the shock of my parents, I changed my degree after my junior year to international policy, public policy. And my mom was just heartbroken because she thought, 'Oh my god, he's going to, you know, we worked this hard in our lives to give them a better life, and what's he going to do?'

I can top that story because after my MBA, I joined Procter & Gamble in brand management. My mother could never understand what brand management was. She was like, 'Well, you make the advertising.' I'm like, 'No, we have agencies.' She's like, 'Well, you make the product.' 'No, I don't.' In the end of the day, she was like, 'What do you do?' It's like, you know, well, I help direct all these other areas so we can move the business forward. She was at a loss. She just couldn't understand why I would do this. Over the years, as my titles got better, I thought she understood what I did. But sure enough, I was an executive at Clorox, I got appointed to their leadership committee, which was their highest level. And my wife was talking to my mother and she said, 'Oh, Tarang had a very important promotion today.' Without missing a beat, my mother said, 'You guys need to open up a Subway.' And my wife said, 'You mean like the sandwich shop?' She's like, 'Yeah, you can't get ahead working for someone else. You need your own business.' My sister has three Subways and she's doing extremely well. I asked my wife, 'What did you say?' She goes, 'I was dumbfounded. What am I supposed to say? She thinks running a Subway would be much higher in elevation than what you've been doing for the last 20 years.' I was so happy. I went straight into the CEO's office and I said, 'Hey, listen, I want to thank you and the board for this appointment. But just so you know, if it doesn't work, I have a plan B. Mom's got my back covered here.'

No, that's right. And I think people sometimes get confused as a CEO, you're in charge. I often say the more powerful impact you can have are the questions that you ask, right? I can direct people to do things, but by asking questions and seeking that learning, not only are the decisions better that we make, but it actually teaches along the way. One of my favorite meetings I do is a product review we do every two weeks. It talks to our speed. It's my meeting. But I make that an open ticket. I remember my CMO when she first came in, she was horrified because she came from Prestige. She's like, 'These are the nuclear codes to the company. How are you letting anyone in?' And I was like, 'Two reasons. One, anyone looking at me would not confuse me as being a makeup enthusiast. So I am not as close to our community as our incredibly talented team. And two, the whole point of that meeting are the questions that I ask, both in terms of what I learn to make better decisions, but how it teaches the rest of the organization what we're going to do.' So that's the one meeting I love looking at the chat field on. There's the one meeting that we will do live, but I will have my iPad and I'll be going through the Zoom chat to see what's going on, and I'll just throw out a bunch of open-ended questions. Tell me why our molting lip balm is phenomenal. What's so great about this formulation? Tell me about this formulation. Tell me how it's different than the prestige item. Tell me why $9 is the right pricing. The prestige item is $26. Why can't I charge 12? Why can't I charge 14? Having that inclusive nature and that, like I said, curiosity, the questions really propel our entire company.

Franco Spedini. I'll tell the story. I was actually even before I was a brand manager, as an assistant brand manager, P&G would have these big reviews. There'd be, I don't know, it seemed like 100 people in them, and someone relatively junior, you'd be off on the side and you'd be observing the meeting, and it was a sector president, their leadership and the GMs, and you'd be going through, and the sector president would be asking a few questions, and I'd have thoughts in my head. And there's this man, soft-spoken man, a little bit further down the table. He would say something, and I was like, you know, I was thinking that same thing. And this happened a few times, and then I noticed that the sector president, who was the person who was all in power, was quite deferential to this man. So I turned over to someone. I said, you know, who is that? Who is that man? Well, that's Franco Spedini. He's the head of R&D for beauty. And I was like, you know, some of the things he said really sparked to me. It seemed like I bet you I could learn from him. So I picked up the phone and I called his office. The people I was working with freaked out because R&D was an empire at P&G. And they wanted to know, oh my god, why are you calling Franco Spedini? What's going on with him? I'm like, I'm just calling for some advice. And that's the way I framed it to his assistant. And I went and I saw him, and he said, you know, in all the years he'd been at P&G, probably about 30 years by then, he said, no brand manager had ever actually called me up to ask me advice. And I said, well, that seems a shame. Crazy. And it ended up being one of the most productive. And it was true because a lot of times people seek their mentors in their own functional lines or their own reporting lines. And this is the way it should work. And I always found the best mentors came from who did you actually have affinity with? Who did you think you could learn from? Who did you connect with? And those often aren't people anywhere near your direct line. And that was very much the case with Franco. He helped me tremendously in terms of my understanding of R&D. I remember at the time I was like, you know, I'm telling the group that I need better conditioning performance and they're not really listening to me. He's like, 'Oh, you know, when you talk that way, you sound kind of stupid.' I'm like, 'What? What do you mean?' He goes, 'Well, let's talk about conditioning. You said you want better conditioning. I have fine hair. It's a parabola in terms of your conditioning. You can have a certain amount of conditioning, then after a while it's too much. I've got normal hair. I've got a different curve. I've got thick hair. I've got a different curve. So when you talk that way, you sound stupid to the people that you're working with.' He taught me, well, how would you ask that question? How would you talk? How would I get after a higher overall rating? Franco was absolutely instrumental because it was outside the norm.

I became CEO of E.L.F. because I became CEO of Schiff Nutrition back in 2010, and that was my first public company CEO role. We built that company up from about 180 million to a billion and a half, selling it to Reckitt Benckiser. So it was a successful outcome that proved I could be a CEO that could be successful at it.

You know, I did. There was an element once I got into business. Once I got into business, I wouldn't say in my motel business, all I wanted to do was get to the next week. But I think once I got into brand management and went into general management, it definitely was an aspiration. But I would say the success we had at Schiff Nutrition, particularly after the sale to Reckitt Benckiser, made it such that everyone, and I had a fully formed team, everyone wanted to talk to us, every private equity company in the world wanted to talk to us about looking at another business. And then I was going to, in this particular case, take the proceeds I made, because as we mentioned, pretty humble roots, was upper middle class, but working at Schiff Nutrition was probably my first real big payday. And we said, you know, I learned early on the power of ownership. My next company, we're going to invest what we made in Schiff. So it's going to be really important what the next company is because we're going to put our own skin in the game. And I took a number of meetings, saw a number of businesses. One private equity company said, 'Hey, there's this company, E.L.F. Cosmetics, coming up for sale. The founders are putting it up for sale. Take a look.' And at first, I wasn't interested in color cosmetics. To be honest, I thought there were way too many brands, way too fragmented a category, not enough product differentiation. But I've always had this other saying in my career, which is it never hurts to have a conversation. So I said, 'All right, well, let's take the meeting.' And I fell in love with the business. And what I fell in love with was this was a father and son entrepreneur who created this brand back in 2004 with this crazy idea of selling cosmetics over the internet for $1. Everyone thought they were nuts. This is pre-iPhone. People didn't think he could sell cosmetics over the internet, and he certainly couldn't make money at a dollar. But they were incredibly frugal, incredibly scrappy. Alan and Joey Shamah. They created this real disruption in the industry. Lived hand-to-mouth for the first few years, online only as a digital business. Then a couple of viral waves where there were rumors. I think the first one was Bloomingdale's was going to buy this brand, make it a house brand, and jack up all the prices. So you better get your E.L.F. I think they went from a couple hundred orders to almost 200,000 orders. The same rumor happened a couple of years later with Nordstrom. I got involved when they had just gotten distribution at Target, the large national retailer in the US. I love the value orientation of the business. I love the digitally native roots. I love the spirit of disruption. But because we were going to invest my own family's money into it, I really did diligence on the company. So I remember the first call I made was to Christina Hennington, who ran beauty at Target, who I knew from previous lives. I said, 'Christina, tell me about this brand.' And she, 'Oh, we love E.L.F.' Like, I never even heard of it. Like, what do you love about it? She's like, 'Well, our buyers are always looking at interesting new brands to test. We'd seen all this buzz virally on E.L.F.' And so she wanted to test it. At first, I was reluctant because I thought it would trade down. At that time, the average unit retails of E.L.F. were $2, and we thought it would trade down the Maybellines, the L'Oréal Parises, the CoverGirls of the world. But I let her test it. And then because they have that guest relationship managed database, she said, you know, we found it didn't trade down those brands. It brought in this entirely different user base. They were young, they were diverse, they're core enthusiasts in the category. Instead of buying that one CoverGirl foundation, they could buy five or six different E.L.F. products. But the two things she said that were compelling, that made me invest my family's own money into buying this company. Number one, she said, 'And they bring me real insight.' And I couldn't understand it because this was a small little private company, $100 million of sales. There's no one with the word insight anywhere near their name. I said, 'Christina, tell me more.' She said, 'Well, every year L'Oréal, P&G, Coty, and others come with their big trends decks, their big launch plans. And you and I both know new item hit rates are less than 50%. I'm the one left holding the bag as merchants. Instead, this little company comes and tells us exactly what's selling on their website, what the reviews are, what they think will work, and they proactively change out 20% of my assortment each year,' which, having been a consumer for so long, I thought was brilliant. I was like, 'Oh my god, that is actually real insight. That is really great.' But the most compelling thing she told me is, 'Oh, by the way, it's the most productive brand I carry.' And I said, 'Oh, you mean on a unit basis because it's really inexpensive.' She said, 'No, on a dollar per linear foot, which is the key measure of retail productivity, it outsells everything.' And of course, we went back, looked at the data, and it did. And my head was racing. I was like, the only places this is in distribution is at Target and their own site. Oh my god, this is beautiful. We know how to build out distribution. We know how to build out a team. We know how to do the hard work. And then I had a different thesis at the time. My thesis was, you know, this is interesting. They're doing $1, $2, $3. What if we instead focused on the best products in prestige? It would give us a higher price umbrella to still have superior value, but where we could engineer in better quality.

No, absolutely. With one twist on the pharmaceutical to generics, it's the identical formulation. We always put our twist on it because we always study the prestige item and something we're allowed to do. I'll give you a great example. Our community tells us what they're looking for. So a few, maybe three years ago, post-pandemic, there was a real resurgence in the lip category. Everyone wanted to express themselves. They wanted bold looks of color. And so there was a prestige brand that had been out there for 10 years. An item, they had a lip oil. Can you name it? Dior. I can miss it. Dior for more than 10 years had these lip oils. $36 in the market. All of a sudden they went viral. They just took off. Everyone needed this bold burst of colors, this incredible glossy finish. Those took off. Our community will come to us and say, 'Hey, E.L.F., help us out. We want a lip oil, but we can't afford it.'

No, the community comes to us. We have a terrific relationship with our community. We are big on every major platform from TikTok to Roblox, and we have an open dialogue with our community. The community will direct message us. They will engage with us. They'll come. I do know a different story here for later, but I end up doing TikTok lives where I get set up as, you got the big boss on now. Tell them what you want. And our community is not shy. So the community came to us and basically said we want lip oils but we can't afford $36. Help us out. And what we'll do is we'll study the product. We'll basically look at it and we'll say, what do people love? They love that incredible burst of color. They love the glossy payoff. But then we'll also find out what don't they like? And in this particular product, for some consumers, it dried out their lips. When we introduced our lip oil, we did a few important things. It was a completely different hydrating formula, a much bigger doe foot, which is what the applicators cost, and an $8 price point instead of 36. It went viral instantly, and we don't have to do anything. We never will compare to the prestige item in that way, which is also different than the generic example of, hey, this is the same as. We don't do that, but we don't have to. The next week there were probably a thousand TikTok videos of consumers going, 'I'm trying. I'm doing my own testimony.'