Birchbox
Using a business plan and a competition to test an idea, then pivoting the plan.
- Sector
- Beauty e-commerce (subscription)
- Source
- Week 5 tutorial resource (Case 6.1, Barringer and Ireland, 2018)
The case in brief
Katie Beauchamp and Hayley Barna met at Harvard Business School. The idea emerged from a class on disruptive innovation taught by Clayton Christensen and from a friend who was a beauty editor: wouldn’t every woman like a best friend who could recommend beauty products? Beauty is hard to sell online because customers want to touch and try, so they designed a monthly subscription box of product samples, with full-size versions sold on their website.
They made Birchbox the final project in their classes and used their student status to reach suppliers and customers. To answer three questions — would brands provide samples, would women pay for curated boxes, and would samples drive full-size purchases — they built a prototype box, cold-called brands (several signed on) and ran a beta site with 200 subscribers paying $20 a month. They then won second place in the HBS business plan competition, gained advisers and turned down VC offers to stay lean.
Birchbox launched in September 2010 and grew fast but was not profitable. In 2016 it cut staff twice, raised $15 million through a convertible note from existing investors and adopted a new business plan focused on profitability. It opened a store in New York in 2014, where customers’ lifetime value proved three times higher than online-only shoppers, and launched its own brands. Competitors such as Ipsy and a possible subscriber plateau remain challenges.
Key facts
- Launch
- September 2010
- Subscribers
- 10,000 by end of 2010; over 1 million monthly subscribers in five countries
- Beta test
- 200 subscribers paying $20 a month
- 2016 pivot
- Staff cut by 15% (January) and 12% (June); $15 million convertible note
- Staple box price
- $10 a month
Analysis through module theory
Feasibility analysis
The founders’ three questions map onto three feasibility stages: supplier buy-in (organisational resources and partnerships), willingness to pay (product/service demand) and full-size sales (financial feasibility). They tested each directly before launch.
Business plan
Writing the plan and presenting it to venture capitalist judges forced a full view of the business and produced mentors and credibility. The 2016 pivot shows the lecture’s point that a plan changes as the business learns.
Innovation
The idea came from a class that challenged students to find an industry game changer; the case notes the beauty industry had seen little significant innovation for years.
Discussion questions
- 1.How well did the founders use their time in college?
- 2.Why is Birchbox a win-win for suppliers and customers?
- 3.What will trigger Birchbox’s next pivot?
Takeaways
- Test the riskiest assumptions with real suppliers and paying customers before launch.
- A business plan competition is a feasibility test as well as a pitch.
- Growth without profit eventually forces the plan to change.