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Startup Report

The Untold Story Of How Lip Balm Upstart EOS Outdid Chapstick

How EOS dared to enter an oversaturated market and became the lip balm of choice for the millennial generation.

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For over a century, buying lip balm meant scanning the aisles of a drug store or supermarket for a small, cylindrical tube of Chapstick. The sticks felt clinical, complete with an "active ingredient" list on the packaging. If you wanted to go wild, you could skip the tasteless "original" flavor and spring for cherry or mint.

But seven years ago, pastel-colored orbs of lip balm called EOS began to pop up everywhere. They took over shelf space at Walgreens, then Walmart, then Target. Beauty editors at Cosmo and Allure couldn't get enough of the stuff, raving about flavors like honeydew and grapefruit. And then Miley Cyrus, Christina Aguilera, and Kim Kardashian were spotted whipping balls of EOS out of their makeup bags.

Products from EOS—the acronym for the company's full name, Evolution of Smooth—are splashed all over beauty and fashion magazines. But the company's founders haven't spoken about their business strategy until now. In an exclusive interview with Fast Company, they told us how they created a $250 million company that has, according to consulting and research firm Kline, become the second best-selling lip balm in the country, after Burt's Bees, and outpaces Chapstick and Blistex, which have been around for far longer.

Kline Research says that EOS has singlehandedly driven growth in the oral care category. It currently sells over 1 million units a week and future prospects look promising, since the global lip care market is projected to increase steadily to $2 billion by 2020, driven by demand for natural and organic products, which is EOS's speciality.

"Not necessarily building up information about it was something quite deliberate on our part," Sanjiv Mehra, EOS cofounder and managing partner, explains. Mehra points out that as a small startup, they wanted to focus all their attention on creating products and distributing them. "As we've grown, we believe that it is important for consumers to know a little bit more about the business we are and the values we stand for."

Rethinking The Tube

Nearly a decade ago, Mehra, who had spent his career in consumer packaged-goods companies like PepsiCo and Unilever, joined forces with Jonathan Teller and Craig Dubitsky, who had spent time at startup incubators, to think about how they could shake up the beauty aisle in the drugstore. (Dubitsky left before EOS launched to manage a new oral care company called Hello Products.)

The lip balm category struck them as a prime candidate for innovation, since the vast majority of products on the market "were indistinguishable" from their 100-year-old predecessor, Teller says. Many brands appeared to be driven primarily by cutting costs and competing on price, he points out. "It appeared to us that everybody in this category was being lazy. That was an opportunity."

Lip balm tended to be treated as a unisex commodity, like toothpaste or shampoo. But, as they did in-depth consumer research, they found that the product was overwhelmingly used by women as part of their beauty regime. On sensory panels, users they spoke to explained that they would lose lip balm tubes in their handbags. Many liked the idea of pots of lip balm that were entering the market, but they did not like to apply it with their fingers, because it seemed unhygienic. But one of their most important findings was that they did not find applying lip balm fun or enjoyable. "The products that women depend on every day should deliver moments of delight that elevate these daily routines," Mehra says.

So they set about creating a product that would be tailor-made for women's everyday experiences, using their own funds and startup capital. (They still have not taken in external investment.) They wanted to rethink the lip balm format from the ground up, so they brought in a clay artist who modeled different shapes. "We were trying to to make the product as imaginatively as possible and not create an incremental variant over what was already in market," Teller explains.

Even though they were coming up with a radically different take on the lip balm concept, they didn't want to make something that would be a fad. "We had to do it in a way that was not gimmicky, so that it would stand the test of time," Mehra says. "We had to make a product and a package that would be seen as useful for a very long time." In his mind, this meant that the lip balm had to be effective and consistently pleasurable to use, not just a wacky new addition to the lip balm aisle.

In they end, they decided to think about how the product would engage all five senses, from soft round packaging that felt good in the hands, to the colors of the orbs, to the smells, to the way the flavors tasted, and even to the clicking sound the sphere makes when it closes. They would price the lip balm at about $3, so that it could compete on price with all the other drugstore lip balms, but they decided to use organic ingredients. (Earlier this year, some customers who had a bad reaction to the product brought a class action lawsuit to the company, but it was quickly settled out of court and EOS was not required to change any of its ingredients.)

Throughout it all, they wanted to focus on creating an emotional connection with the user, rather than being simply another commodity. So they picked the tagline, "The lip balm that makes you smile."

Big Dreams

But it wasn't enough to create an innovative new product. How would a startup compete in a market dominated by giants like Chapstick, which is owned by Pfizer, and Burt's Bees, which is owned by Clorox?

Mehra and Teller explain that it wasn't easy getting into stores. Mehra was himself familiar with the process, and they also hired an experienced sales representative. But buyers at drugstores and chain stores didn't know what to make of this new product. Many thought that customers were creatures of habit who were loyal to their existing lip balm brand. "There were a lot of male buyers out there who would say that they didn't understand the product," Mehra says.

This makes sense, since the EOS team had carefully designed the product for female users. But then they were lucky enough to get a meeting with a female buyer at Walgreens who loved the little spheres. They landed their first account with her, and after the successful launch of the product, Walmart and Target later decided to sell EOS on their shelves.

This brought them to their next big hurdle: To compete with the industry leaders, they would have to scale very quickly. They decided early on to invest in their own equipment, rather than relying on a third-party manufacturer. Mehra and Teller remember going to engineering trade shows to see how they could get experts to create machinery for them. Ultimately, they managed to create a production facility that is almost entirely automated from start to finish. This has served them well, since they were able to meet the demands of every new account they landed very quickly.

Marketing To Millennials

Besides getting products on shelves, the cofounders wanted to create a buzz around their new product. They decided that their target audience was millennial women between the ages of 25 and 35 who were style conscious. EOS advertised in the same ways that the older brands did, through magazine and television ads, but they also became experts at influencer marketing, which they believed was a smart way to reach their demographic.

They contacted beauty bloggers who reviewed the product and talked about it on YouTube, Facebook, and Instagram. They worked with millennial celebrities to get the word out about the lip balm through product placements and endorsements. EOS appeared in Miley Cyrus and Britney Spears music videos, was a headline sponsor for Demi Lovato's world tour, and Taylor Swift became its Asian spokesperson. "We became the largest advertiser in our category," Teller says.

EOS has also worked to build a large social media presence. It now has more than 1.8 million followers on Instagram and nearly 7 million followers on Facebook. A photograph of a new EOS flavor can get over 40,000 likes.

Finally, the brand partnered with other major players on the market. It collaborated with Keds to produce an EOS shoe that came with a matching lip balm. It worked on a limited-edition holiday collection with designer Rachael Roy. It created an Alice in Wonderland collection with Disney that sold out in days and showed up on eBay for hundreds of dollars. (Some are still being sold, starting at $75.)

All of this work has paid off. In seven short years, the brand emerged from an incubator to become a household product. It has even spawned a host of copycats. Blistex and Revo (made by OraLabs) have spherical lip balms that take a page from EOS's playbook, while Walgreens and Sephora have created their own iterations of it. These days, the company sells over a million lip balms a week, which is more than they sold in their entire first year in business.

For all this success, the company is working hard to continue innovating. It comes up with new collections regularly, so that there is a constant stream of new products on shelves. EOS already creates shaving creams and hand lotions, but plans to enter new categories in the future.

As Mehra and Teller look back, they believe that their unique backgrounds allowed them to take on a giant of their industry. Mehra, having worked at major corporations, understood the ins and outs of big business, while Teller was immersed in startup culture. Says Mehra: "That approach of using an entrepreneurial mind-set and big-company discipline is part of how we do things every day at the company."

Slideshow Credits: 01 / Photos: courtesy of Evolution Of Smooth (EOS);

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