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Why Beauty Brands Are Betting on Incubation

It’s not just for eggs and babies anymore.

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Seems like everywhere you look, big beauty brands are either turning to or setting up incubators and accelerators, hoping to capture the next big thing. What was once a way for small brands or upstarts, like Y Combinator’s Hush and Memebox, to grow into medium-sized success stories is quickly becoming the norm in product development. A few recently in the news: L’Oréal’s Founders Factory, Sephora’s female-driven Accelerate, The Unilever Foundry, P&G’s Connect + Develop Program, and Target’s own accelerator and partnership with Beach House Group (formerly Project Underground), undertaken last year to launch lines Mayfair Soap Foundry, Marlowe, and You Are Amazing.

And those are just the public moves — one independent incubator we spoke to, Crème Collective, says it’s recently been approached by a known retailer to create a beauty brand in the luxury organic segment. In other words, there’s more incubation going on than we know about, and we know about quite a lot. It’s a deliberate turn away from the old model, in which in-house teams worked on creating a new product to round out a line’s offerings or waited for niche brands to build an audience on their own before snapping them up.

First, a word about accelerators versus incubators. The major difference is that accelerators tend to focus on short-term support to help a brand get off the ground, while incubators have more of a marathon mentality, often starting earlier in the development stage. However, the line between the two is blurring more and more, and now the terms are used almost interchangeably.

Regardless of the exact term, there’s no denying these labs carry a certain cachet. That’s thanks in part to independent players like Seed Beauty becoming a major power with Kylie Cosmetics and ColourPop, and big, industry-shaking brands like incubator-graduate Dollar Shave Club.

But besides the cool factor, the setup simply makes business sense. “Historically, big companies were often content to sit back and wait for new brands to reach a certain level of growth before they'd jump in to acquire them,” says Zoe Leavitt, retail tech analyst at tech market intelligence platform CB Insights. See: Estée Lauder’s purchase of Becca. But, she continues, “Today, as the startup space gets more active, corporates are facing more and more competition, and startups with long growth records are earning higher and higher price tags. From the corporation's perspective, it might be easier to build relationships more cheaply with a range of early-stage startups through an incubator, and then know that relationship will be maintained as the startups grow.” That’s one of the reasons why so many big-name brands are cutting out the middleman and setting up labs of their own.

Another major element: Incubators are particularly good at creating products consumers actually want. “People expect a lot more out of their beauty products than they used to,” says Leavitt. “Shoppers don't want something that masks imperfections; they want something that fixes them.” And that has created an opportunity.

“This has become a really critical moment in the beauty industry because technology's ripe enough to provide [performance],” says Guive Balooch, global vice president of L'Oréal's technology incubator. “Consumer demand is now at that level where innovation is going to become key to the future of our industry.”

The major point of differentiation in the process? “A lot of times in large companies [development] people will say, ‘10 percent, 20 percent of my time is spent on innovation.’ And the reality is you really need to focus on innovation projects 100 percent when it comes to this type of [tech-centric] field,” Balooch explains. And that’s what’s happening at incubators. These development programs are intense but nurturing bootcamps where (on a larger scale) new lines and (on a smaller scale) the search for groundbreaking technology receive considerable attention, direction, and resources to get brands off the ground both quickly and successfully.

Another factor here is the talent. Incubators offer the promise of something new — a major attraction for big thinkers and innovators. That’s why so much of this is happening on the West Coast. Therese Clarke of the incubator Crème Collective, which has an office in Huntington Beach, California, stresses the benefits of her company’s proximity to San Francisco. “It’s where so many cool companies are fusing beauty with wellness and beauty with tech,” she says. “Plus, having access to what other industries are doing drives innovation. Some of my best ideas have originated out of these other fields.”

Balooch confirms the West Coast magic. “I have teams all around the world,” he says, “but I knew that if I weren’t in the Bay, there would be a key ecosystem that was missing for me to be able to create beautiful industrial design, beautiful products.”

This emphasis on tech has the potential to be a win-win for both consumers and brands — after all, products and features that meet consumer needs in an intelligent way are great for both sides. A few examples: Sephora’s Innovation Lab created a perfume air-puff system to test fragrance, allowing for a better, more informed buying experience at the counter. And L’Oréal has released the Kérastase Hair Coach Powered by Withings smart hairbrush that “reads” hair to provide personalized product advice to the user.

But for a case study of the benefits of incubation for technological development, perhaps the best example is another L’Oréal launch, the My UV Patch, a stretchable, wearable skin sensor that monitors UV exposure. Developing it required designers, someone to write an algorithm that measures sun rays, a team to run clinical studies, and another group to create an app. “[There] wouldn't have been a very easy way to do that if there weren’t a team like mine that was focused on this type of innovation,” Balooch says. “That takes an incubator to create it.”

All this is great news for efficacy, but there could be a downside as more and more big brands start to take over the incubation reins rather than outsourcing to an existing accelerator or incubator.

Pirooz Sarshar, chief operating officer at PCB Life, Peter Coppola Beauty’s incubator, worries that big companies might take away the quirks and charm that often characterize startups, where the focus is more on passion or fulfilling needs than fitting into an overall portfolio of work. “It’s not unlike the big brands that are consolidating brands to stretch out shelf space, creating extinction of independents,” he says.

Another worry: Handing the reins to big companies might squash the kind of out-of-the-box thinking that helps identify new problems to solve for consumers, like Dollar Shave Club did in the shaving sector. With a more risk-averse parent brand overseeing things, it’s possible that the up-and-comers won’t be able to be as bold and disruptive. After all, if the big dogs were gutsy enough to find new niches and try out seemingly wacky products or strategies on their own, they wouldn’t need these programs to begin with.

Whether it’s possible for these mama-bear companies to allow a brand to grow to its full potential without changing its DNA so much it becomes yet another version of what’s already out there remains to be seen, but it’s something Sarshar says he’s taking into consideration when building his company’s partnerships.

While it’s hard to predict exactly what the next innovation to come out of these tech heavy-hitters will be, Leavitt highlighted some areas to watch out for. The first area of interest? Inclusivity. “There's growing investor awareness of the room for growth in beauty for African-American women, Indian women, and anyone with a nonwhite skin tone or hair texture.” Another area of interest is personalization, something that has shown success for Function of Beauty (a line that was backed by the accelerator Y Combinator). And, she adds, “We haven't yet seen real adoption of technologies like at-home 3D printing, which would be the gold standard of personalization.” Seems L’Oréal has some 3D-printing projects in the works. Could that be the next stop? Time will tell.

Time will tell if this strategy will be a win for all the brands going this route or if the race for new, better, more will make everything fizzle out in one big eyeshadow-tinged supernova. For now, at least, we can expect these labs to capture technology and cause industry disruption. It’s what brands are banking on.

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