The journey from being fired to becoming a founder

AMY ERRETT: I got fired for the first and only time in my life.

JEFF BERMAN: Amy Errett is the founder and CEO of the hair color brand Madison Reed. But just before she struck out on her own, she found herself in a hotel lobby, in total disbelief.

ERRETT: I walked out, and I had a convertible car, and it was a Monday morning at 9:30. It was a beautiful day in the Bay Area. So, I put my top down, and I was driving, and the first thing I thought of was, oh my God, people walk around on Monday at 9:30. They’re not in offices like you are as a maniac, right?

And I came into the house and told my wife, Claire, what had happened. And I said, “We must tell Madison.” Now, why I wanted to tell a four-year-old is … you know, you’re not rational. And so Claire, in her wisdom, grabbed Madison and said, Madison, “Good news now. Mommy works at home.”

And Madison took me by the hand and took me up the stairs to my office, signaled to the chair, and said, “Mommy, welcome.​”

BERMAN: After the firing, Amy leveraged her decades of experience and set out to be her own boss. Now she has disrupted the lucrative hair color industry.

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I’m Jeff Berman, your host.

More than 5 million people have tried Madison Reed’s hair color products since Amy founded the company in 2013. She has excelled by finding innovative ways to create quality products with cleaner ingredients and by listening to clients about the features they really want.

Amy says her business is all about empowerment. She’s laser-focused on creating more opportunities for women to thrive.

BERMAN: Amy, welcome to Masters of Scale.

I’m thrilled to have you. You and I have known each other a long time. Longer than either of us probably cares to acknowledge. But one thing I did not know until I was prepping to sit with you today is that part of the reason that you are the founder of Madison Reed is you got fired from a job.

I’m imagining that most of the people who are watching or listening have been fired or have felt like they’ve been fired. And it can knock you on your butt. It can take a minute to get back up. Did you need to take a minute to reset?

ERRETT: Yeah. I got myself into therapy. And I tried to understand why this was so big, what was the trigger. It took me down a path of understanding a lot of things about myself.

BERMAN: And was there a particular lesson or set of lessons that came out of that, or learnings that inspired what was next for you?

ERRETT: Yeah, so I really suck at working for someone. That was the big thing that came out. It was like the therapist was like, “Okay, let’s not go through that again.” So I learned very quickly that putting myself in that setting set me up to fail. Everybody has a genius inside of them. I think life’s path might be to find what that is and then have acceptance about the things that don’t work for you and what are the things that work for you. So the first thing was really clear — going back to work for somebody was not going to be good for me.

BERMAN: Did you also identify what your genius was?

ERRETT: I love taking really juicy, hard, almost impossible problems and figuring them out and building a group of people that has a mission and a purpose. For me, it was important to have a product. It was important to do something that spoke to something that matters to me, and we’ll get into it, which is women’s empowerment. But what I also knew, and this will be interesting as I talk about my VC journey and about why that didn’t work, is I don’t like to do things solo, right?

I’m not a great individual contributor. I like teams. I like building teams. I like rallying teams. I find that whole team experience of taking a group of people through an impossible journey together and understanding those dynamics and figuring them out to be so, they just fascinate me.

BERMAN: Yeah, and you light up when you talk about it.

ERRETT: Yeah, I’m obsessed with the fact that Madison Reed today has over a thousand people. In my mind, what we have is a huge social experiment. There’s a business, but it is a social experiment of a thousand people with all their lives coming together who have to embrace a single mission and accomplish that every day. That is really hard, and I find it just completely fascinating, which is why I spend 25 percent of my time on culture.

Lessons from venture capital

BERMAN: I want to come back around to that because you referenced your time as a venture capitalist. That’s when you and I met. It’s not obvious that that’s where you would go and what you would do. When you’re so passionate as a team leader, a team member, as someone who wants to be a part of a team to build and solve problems, VCs talk about that a lot. They don’t always do that. Why did you choose to become a VC? And what was that experience like?

ERRETT: The truth is that I had an association through the place I got fired from, with Maveron.

BERMAN: Seattle-based venture firm.

ERRETT: Seattle-based. Howard Schultz. They had wanted to invest in the company that I had just gotten fired from. So they were sort of reaching out to me saying, “What the heck happened?” And then said, “Hey, we really liked you, why don’t you come hang out with us?” The theory was I’d be an EIR, which is an Entrepreneur in Residence, and then start something.

BERMAN: Right, and then Maveron would likely invest in it.

ERRETT: But as I started to do it more, I did become intrigued by the problems I was seeing. It’s really hard to be a great VC. It’s like almost virtually impossible. So that was a hook.

BERMAN: Because why?

ERRETT: We did early-stage investing. You have to see things around the corner before other people do. You have to have a great read on people. The biggest element is that what people don’t understand is there is an element of luck that you could never replicate. It’s right place, right time, right people.

What was great was they never had a Bay Area office. So if you think about it, it was like I was given a task to do a start-up of an established brand already within a region where they weren’t represented. That was really fun. When that was over and the office was running and we were getting deal flow and the brand was established, that was when I started to have an itch again.

And then, I did incubate Madison Reed in their office.

BERMAN: How long were you at Maveron?

ERRETT: Six and a half years.

Inspiration from Dollar Shave Club

BERMAN: And while you were there, Dollar Shave Club came in and pitched and Maveron did not invest. Why not?

ERRETT: Well, first of all, I don’t think that this qualifies as bad judgment on behalf of anybody at Maveron. I think it was just a moment in time, and you have to remember the irony. Mike Dubin is now on my board, and we stayed close as friends. He’s been a mentor to me. He’s a wonderful guy.

BERMAN: Founder of Dollar Shave.

ERRETT: Founder of Dollar Shave, and we passed for all the reasons that one might think at that time didn’t make sense — about shaving, the size of the prize, how do you take Gillette on, who’s going to buy this stuff sort of direct to consumer.

The irony of it was the sort of seed of what happened with Madison Reed. Because after we passed, and I stayed close to Mike, I had a summer GSB intern do an analytical scan of what would be the women’s analog to shaving.

BERMAN: Wow, what a great summer internship project.

ERRETT: And what came up to the top of the list — and I kept saying to her, go back, these numbers can’t be right — was hair color.

BERMAN: Because the numbers were huge.

ERRETT: They’re huge and repetitive, like shaving, and we couldn’t find anything online that owned the space.

BERMAN: Wow. So, Dollar Shave was, in some ways, an inspiration to explore. And so when the summer intern — what’s their name?

ERRETT: Rebecca.

BERMAN: When Rebecca came back and said, “No, Amy, these numbers are real. This is the addressable market. This is not a washing machine that people are going to buy every 10 years. This is a frequent repeat, right?”

ERRETT: Mattress? Sorry, I love you guys.

The origins of Madison Reed

BERMAN: Right, I think you just triggered some PTSD for some investors out there. But that’s one of the things about consumer products: a high repeat purchase or subscription product has so much more value. And consumable, right? So, when Rebecca presented this to you, and you’re sitting there, and you’re checking her on the numbers, are you starting to get the itch now?

ERRETT: Yeah, I had an itch now, but I had also been intrigued a lot by what we were incubating. So, I was sort of thinking, well, I’m going to find a great entrepreneur who’s going to know how to do this, and I’m going to help them, and I’ll be the board member and put the money in.

That was the first iteration. Then I remembered one important thing as I was going through this. I kept thinking, well, they’re going to have all the fun. Now that is an incredibly crazy thought process for pain and suffering in the future. But I remembered that on all the boards I was on when I was at Maveron, I used to be jealous of the CEO.

I used to want to be in that seat. Definitely controlled my behavior because the investor who wants to be in that seat is quite dangerous, by the way. I don’t think any of my entrepreneurs would say that. I was there to be helpful. But all the other board members, Jeff, would get in their car and get the heck out of there when the board meeting was done.

And I just wanted to chat with the CEO and see if I could understand how to help. That started to get me to kind of scratch the itch, and again, Claire, my wife, who knows nothing about business but is right all the time, damn it, said to me, “I don’t really understand why you’re not doing this.”

Now, the second part of the story is that Claire started to go gray when she was 22. So, in order to be, I think, to create a great set of products, you have to understand a pain point. And this consumer pain point was, this person was going to get their hair colored every two and a half to three weeks, sitting in a chair for three hours, and is one of those people who cares about ingredients and could not get the stylist to even begin to tell them what was being put in her hair every two and a half to three weeks.

BERMAN: Yeah. And probably not spending a small amount of money to do this in the process.

So, you saw the problem.

ERRETT: I saw the problem.

BERMAN: You saw the opportunity.

ERRETT: I saw the opportunity.

Overcoming early challenges in product development

BERMAN: What happens next? How do you get Madison Reed off the ground?

ERRETT: The first place was, could we make hair color with better ingredients? And in enough shades? And could we color-match people without seeing them?

Those are juicy, real problems. So because I was a VC, I had access. I got somebody who was running something large at L’Oreal to talk to me on the phone for two hours. At the end, I was asking enough questions that the person said, “Are you thinking about doing something?” And I said, “Well, I’m not sure. I may fund it.” And this person stopped and replied, “If you do, count me in. I’ll put money in.”

That’s how big this problem is.

BERMAN: From L’Oreal, this is not some small commitment.

ERRETT: Yeah, and he was running something adjacent to a hair color brand. Then I said, “Well, do you know scientists? Do you know people I can talk to?”

He said, “Here are three consultants that do this for people.” Who knew? I connected to all three, picked one, and we went on an adventure to Italy together.

BERMAN: Why Italy?

ERRETT: Because it is where most private label hair color is made, and the EU has a very strict regulatory environment where basically you can’t put certain things in personal care products. So, I knew we had a chance. It was a hard problem to solve to take all of the nasty stuff out and put good stuff in. So we went to Italy, we met with 13 private label providers. The first 10 just completely laughed at me. I mean, it was just unreal.

BERMAN: Because their business is basically like you pick our formula, you put your label on it, your brand on it, and it’s effectively the same as anyone else’s?

ERRETT: And it’s on somebody else’s shelf, right? Or making it for a European distribution, Middle East distribution or selling hair color online as a D-to-C company with enough shades and you want us to take the ingredients out and you’re gonna devise a way to color match somebody.

BERMAN: They thought you were off your rocker.

ERRETT: Lucky number 11.

BERMAN: And what happened in that last meeting?

ERRETT: The owner, who is still our partner today, was listening, listening, and listening, and he stopped me and said, “I don’t know why I’m going to say yes to this, but I’m going to say yes. Here are the two criteria: you have to pay me all the money for the first run up front, and it’s got to be in euros.”

BERMAN: Wow.

ERRETT: Without even pausing, I said, “Okay, no problem.”

BERMAN: Do you remember how much that first run cost?

ERRETT: That first run cost about, I don’t know, maybe 80,000, and I funded it myself.

BERMAN: You funded it yourself?

Testing the product and achieving initial success

ERRETT: I put in my suitcase 19 shades of the color and brought them to the person who used to do my hair, who’s the most famous stylist in San Francisco. I said to him, “Listen, if I bring a bunch of women in on a Friday night and buy the wine and cheese, will you get 19 different shades put on people and let’s see in reality? And I’ll give you some part of the company to do it.”

BERMAN: Wow.

ERRETT: And he did.

BERMAN: Wow.

ERRETT: So 18 of the people were thrilled. It was like nothing I had ever seen in my life. And one, my ex-college best friend, was screaming at me. So I also learned a lesson from that. She was like, Amy Errett, I’m going to see my effin husband in 45 minutes. You better effin fix this!

BERMAN: No, no, she’s still a friend?

ERRETT: No, no, she’s still a really close friend, and we knew how to fix it.

But I saw the elation. I saw the absolute joy. And that was an important moment for me.

BERMAN: More with Amy about her incredible story of disruption and scale in just a minute.

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BERMAN: Welcome back to Masters of Scale. You can find this conversation and more on our YouTube Channel.

You know that you’ve got a massive market; you’ve tested it on a group of humans, and you’ve got a like 90 plus percent satisfaction rate in your testing.

ERRETT: That one was really not good.

The importance of the right team and leadership

BERMAN: But lessons from that one. You’ve got to figure out funding, and then you’ve got to figure out distribution. So what do those look like? What happens next?

ERRETT: So the first place we then started was sizing the prize, because I remembered again, I had a playbook from being an early-stage investor that it’s: TAM — total addressable market, it’s product differentiation, and it’s team. I knew that I could put together a team. I’ll talk about a big mistake. I did not have a technical co-founder. And it cost us, I would say, about 18 to 24 months of really good digital product and commerce.

BERMAN: Did you hire an agency to do that work for you?

ERRETT: No, we did it internally. I’m an internal person. I use very little agencies, just a little pet peeve. I think when you are obsessed about your brand, when you outsource, somebody else can’t care as much as you care. That’s just the truth. So, what happened was we had hired a VP of engineering, and it was clear that I should have had a co-founder that was a technical co-founder. There were too many co-founders. There were four of us. That was a dire mistake.

BERMAN: Why were there three other co-founders?

ERRETT: Because I was generous, somewhat naive, and kind of fell into the trap that… Multiple of the people had very good Silicon Valley credentials, and they’re very good people. I’m still close to them. But what you start learning is when you start something from ground level, the ability that you need is to have people who can do two important things – get at 30,000 feet at any moment and go what I call subterranean at any moment, right?

You need to be the one that knows how to code. You need to be the one who knows how to get your hands dirty and manage churn. You go down the list of the number of things that the granular and the strategic need to match. So you start really understanding very quickly who can keep up with that pace.

As the company scaled, those people eventually left all courageously and nicely, and we’re still friends. But I learned a couple of lessons in that that I think were worthwhile. Lesson number one, for me, is a blind spot, so that’s the other part that I come back to when I talk about your genius. Everybody has a genius, and everybody has massive numbers of blind spots.

BERMAN: Yeah, I was going to say it’s not just one for me.

ERRETT: And once you learn what they are and are curious about them — but don’t blame yourself — and once you learn what other people’s are — and don’t blame them, but you’re actually curious — then you can just make decisions from a place that’s not overly clouded with all of your trip-ups. So, a big thing for me that’s been something that’s plagued me my whole career has been when I know, I know, and then I take too much time to let someone go. And it’s out of a kind place, but it ends up being something that over time. I love you, I love you, and then you’re dead to me. I don’t have to get to the you’re dead to me place. I’ve learned that. So, going back to it. So we have the product, we have the digital product. And then, once we had the team that was working, and knowing the product differentiation, it wasn’t hard for us to get funded.

Inside the fundraising strategy of Madison Reed

BERMAN: So I’m thrilled to hear it wasn’t hard to get funded. We’ve had a number of women founders on who founded companies that are creating products disproportionately for women: Tracy Ellis Ross with Pattern and Lauren Wang with Flex Co. and others who haven’t had the easiest road. What was your journey like?

ERRETT: I had an immense advantage having been a VC. I won’t even chalk it up honestly to being a better idea than anybody else’s. Remember the luck word. It was a time when D-to-C was exploding, and it was a unique thought process. I had competing term sheets, and I had the advantage of knowing who I wanted around the table.

BERMAN: You also had a product at that point, even if it wasn’t?

ERRETT: We had a product that was tested already, not at mass. So we didn’t have boxes. We didn’t, right. But we could show a demo, we could show how to color match that was kind of sexy then.

BERMAN: And the trope, Amy, is that the male VC would say, “Well, I need to ask my wife or daughter about this to understand it.”

ERRETT: Before I let anyone do the Series A, I actually told them to do so. I went and I said, “Listen, you guys may think this is a good idea. You actually don’t know.” So I want you to go home, and either your wife, your partner, your kids, your cousins, your aunts, and I want you to ask them about this problem — how big the prize is, how many times a year do they do it. Because here’s what I don’t want — I don’t want a yes, and then it’s a half-assed yes because misaligned goals around the boardroom are a cluster. And I’ve been there on the other side, and I don’t want to be there on this side. So I actually forced the hand. And in each case, in the A and B rounds, they did it.

Their wives have been early adopters of the product and love it now. Some of them have moved to our stores instead of doing it themselves. And I have to say that I have had the blessing of the most supportive and to some extent not always agreeing, which is good — disagreement is good — but I have a very supportive board.

BERMAN: Yeah, that’s fantastic. How much have you all raised so far?

ERRETT: Two hundred and forty million dollars.

BERMAN: A lot of money!

ERRETT: The company has scaled to magnitudes that are meaningful.

We are a $200 million top line business that’s profitable and growing 20 plus percent every single year. We’re an omni-channel business, so we have a lot of distribution. It’s a brand.

Navigating company culture during the pandemic

BERMAN: Right. Okay. So you’re growing, you’re building your customer base in D-to-C. You’re starting to go into retail.

ERRETT: Starting to put our toe into the retail market at Ulta.

BERMAN: And then a pandemic hits.

ERRETT: We were selling a box of color every 5 seconds during the pandemic.

So we have nine stores. Pandemic happens, right? Close the stores.

BERMAN: Right. You close the stores.

ERRETT: Ulta closes their stores, but online goes crazy. Our online site goes down.

BERMAN: So how did you manage that growth and keep quality consistent and keep your culture, which I know is so important to you and to the company, keep your culture consistent?

ERRETT: So we have five values that we had day two in the business: love, trust, responsibility, courage, and joy. Cultures can be words, or they can be actions. We take actions. There are so many things that happen in the company to reinforce those words.

The first place I start is it’s all about traditions. It’s all about creating a community that has consistency, that can believe in what you tell them, and then you deliver. If you don’t and you screw up, you own it. The first thing is that from the first week we were in business, I had lunch with the company at 12:15 Wednesday Pacific every Wednesday.

There’s only been a handful in 10 years I’ve missed. So that helps a lot. I have lunch every Wednesday. It’s mandatory, Pacific 12:15, and the same format, it has evolved some, has happened every Wednesday. It starts out with welcoming new people: two truths and a lie. Everybody in the company votes on what the lie is.

People go crazy. There are balloons on Zoom, there’s a way to welcome somebody that’s saying, come in, you’re here, right?

Your teams want to be seen. They want to be seen for their contributions. They actually want to be seen where you think they need to improve. They want to be seen as human beings that make a difference. If you see them, the productivity is insane. It’s like, I don’t understand when businesses don’t want to see their people.

There’s a ritual within the hair color bars of how — so the whole key to a store is the general manager. Full stop. You get a great general manager, the store goes through the roof.

The most important factor in our business, we have a supply and demand business, right? There’s demand for hair color, and we have product and we have people in stores that can deliver it.

The average colorist in the U.S. makes less than 35,000 dollars. This is not the person in Beverly Hills, right? So a lot of people listening might think, oh, that’s low. This is a Supercuts person. This is Fantastic Sam’s or someone coming out of cosmetology school making 25 grand. They are below the poverty line. Most of the time, it’s a woman, and a lot of times it’s a woman of color that has kids. If people don’t believe that that is my mission to solve, they’re wrong, because at the end of the day, if this little tiny engine that could can take women of color and give them jobs where they’re making 80 grand a year, and we pay their medical benefits, and all of a sudden they can buy their first house, and I get Slacks all week long of women who message me, “Amy, I bought my first house, I did it. My kid is seeing me work hard.” How people change is because businesses decide they’re going to create the Petri dish. Whether everybody can grow in the Petri dish is a separate issue. When people can’t grow or they’re a cancer to your Petri dish, you get rid of them, right?

That is the antithesis of the core values. But my mission is as much, I have three customers. I have a customer that buys a product. I have my investors and shareholders, and I have my team. I serve at the pleasure of my team. They are my customer. If they don’t buy in, I don’t have a business.

Right? So it, to me, it’s very simple. Living a life that is authentic about that. There have been plenty of times, Jeff, where I’ve done some bozo thing. I’ll be on the lunch and start it by saying, listen, I first want to start by apologizing. People are just blown away, right?

The first place you start is we’re all human.

How Madison Reed identified their customer groups

BERMAN: Which means we’re all going to make mistakes. If you’d asked yes or no, what are the chances that Amy brought Bain in to help with Madison Reed?

I would have said, “Oh my God, no way. She’s an incredible operator. She’s deeply experienced. She has relationships out the wazoo.” Why did you bring Bain in?

ERRETT: Simple reason. Six months into the pandemic, I had no idea who our customers were. So if I went to the board, I would always lead a board meeting with what isn’t going well. Your board should be your best allies. You should never chest pound. You should just be completely authentic with them, saying like, “By the way, guys, I need your help.” Right? That’s why you’re here. So I went to the board and I said, “Yeah, there’s good news, bad news.”

This thing is exploding. We’re keeping the wheels on the bus. But if you asked me what’s going to happen in six months, I have no idea. I don’t know who my customers are anymore. So from a strategic standpoint, I don’t know where to go. Should I open more stores? Should I still be in retail?

I had two term sheets from — don’t get mad at me, P.E. friends, Masters of the Universe. So basically, we went into a bake-off, and I knew the Bain folks. They took 50 percent in equity in their fee. That said a lot. They came in and did a complete study of the market and a study of the segmentation of our customer base.

They gave us so many amazing insights, churn mitigation model, all sorts of stuff that were great, but the one insight — and so this is the pearl of wisdom that I believe, and so my Bain friends listen carefully — will be a thousand times the value of the company is the following. I had asked them to find out who the customer for our hair color bar, our store, was.

I knew we needed to hit the gas pedal, but it was just instinct. There was no data that suggested I was right. So in the segmentation, they identified a core group of women. They identified the bulk of women as salon lovers. They like to sit there, they want to schmooze with their friends, they tell the stylist everything.

But they were of a certain age group that was older. Then they identified an emerging group called salon realists. Convenience, fair price, cared about ingredients, want to get in and out, same-day appointments, mobile-enabled, bingo.

BERMAN: Strong Wi-Fi, USB ports, yeah.

ERRETT: No mirrors.

BERMAN: Yeah.

ERRETT: Nice cup of espresso. So, what they did was we took that and said, “That is the core, let’s start marketing that message.” That’s when we got the stores we have now.

BERMAN: My last question for you, Rebecca, the Stanford graduate, the business student who did that summer project for you. Where is she now?

ERRETT: She’s a very successful VC, and she’s one of the nicest people in the world. I adore her. So, thank you, Rebecca.

BERMAN: I love it. I love it. Thanks for being with us, Amy.

ERRETT: I have had such a great time, and you do a wonderful job, so thank you.

BERMAN: You make my job easy.

I love Amy Errett’s focus on finding your genius and then building a team with genius in complementary forms. It’s an important reminder that diverse teams do make us stronger.

I’m Jeff Berman. Thank you for listening.