Andrew: Hey there freedom fighters. I am Andrew Warner, and I am the founder of mixergy.com, and, of course, it’s home of the ambitious upstart. I was at a conference speaking. Today’s guest walked up to me. We started talking. He showed me his hand and he said, you see this thing right here, that’s not real skin, it’s synthetic, and my company makes it.
So I started asking the kinds of questions that you know me for here in the interviews, because I do that even offline. Things like, well, how do you get your customers? How’d you build your business? What kind of revenues are you guys doing? He was really open, and I’m hoping that he’ll share all of that here with you today. That’s our goal. I want you to hear his story and how he built up his business.
Today’s guest is Oscar Atkinson. He’s the founder of Silicone Arts Laboratories. They make Dermaflage. It’s a scar and wrinkle concealer that uses silicone to replicate the tone and texture of its user’s skin.
As we talk, ask yourself a few questions. I think if you do it’ll help you really connect with this interview and absorb more of what we’re going to be talking about. The first is, if you were going to run a company like this, where would you get customers for synthetic skin? Oscar will tell you what he did, but think ahead of time. What would you do if you were in his place?
Second, how receptive do you think investors would be to this idea? He’ll tell you about his experiences. But, if you had this business, how receptive would they be? And, Oscar, don’t worry about taking notes. I’ve got this all up on my screen, so I’ll make sure that we get to all of it.
Finally, do you think that QVC – you know, the TV shopping channel – would be a good avenue for sales and getting customers? Oscar will tell you what happened when they were on QVC.
We’re going to going to talk about all that and so much more. Thanks to Scott Edward Walker who is sponsoring this. He is the startups lawyer. I’ll tell you more about him later, but since he’s paying for this interview and sponsoring us I want to make sure that you guys know about him. It’s Scott Edward Walker.
Alright. Oscar, thanks for being here.
Oscar: Thanks for having me on, Andrew. I’m excited to talk with you some more.
Andrew: Me, too. When you were a kid, other kids had a name for you. What did they call you?
Oscar: Unfortunately, this was the peak of “Sesame Street” and Oscar the Grouch was one of the key characters along with Big Bird. In my kindergarten class I was often called the Grouch man. It was terrible. I hated my name. I hated my parents for naming me Oscar. But, I think as I grew a little older I learned to appreciate an unforgettable name or an uncommon name, let’s say. It’s also helped me identify with some of our customers who are often self-conscious about a blemish on their face. It may be insignificant, but it’s important to them.
Andrew: Why did they call you Oscar the Grouch? Was it just because your name was Oscar?
Oscar: I think that was the main thing.
Andrew: I see.
Oscar: I considered myself a pretty friendly little guy at six years old. But, maybe I was a bit stubborn and impetuous back then and I deserved the name. Who knows.
Andrew: How would your stubbornness express itself when you were a kid?
Oscar: I usually was one of those kids that always had to win the game whatever it was, whether it was marbles or kickball or kick the can. I have a pretty strong competitive streak, so I may have deserved a few of those Grouch calls back in the day.
But I’ve learned through many business failures and just maturing to be humble in all that you do. Because there’s always somebody out there that’s bigger and better and badder than you. If you go into it with a humble attitude you’re much more likely to learn something as opposed to try and pretend like you’ve got it all figured out.
Andrew: Why were you so competitive even at an early age?
Oscar: I think it’s just something I got from my parents instilling in me if you’re going to do something do it right. Don’t do anything halfway. Strive for excellence. If you’re not going to win, that’s okay, but give it your best and nobody can fault you for that.
Andrew: What did your parents do with that kind of determination? What did they do?
Oscar: I grew up with a single mom. She was a very strong character and very competitive in her own right. She went back to school and got a degree while I was just a toddler and then began a real estate career. She and I were like two peas in a pod for the first seven years. Then, my stepfather was a physician. He is competing on a daily basis to stay ahead of the mess of the healthcare system, but let’s not go there. But, they’re both very competitive people. I think they’ve instilled that in me.
Andrew: Wow, your mom went back to school. Do you remember when she graduated? Do you remember graduation day? Were you there?
Oscar: Yes. I was there. It was at the University of Memphis which is our hometown and where we live now. I remember seeing her walk and being a little confused as to why she was still in school when she was in her thirties but I’m proud of her all the same.
Andrew: Well, I can see now how you would stick with this and where you would get your determination as an entrepreneur. What I’m curious about is, before this, you said you had business failures. What were those failures?
Oscar: Well, I think in the business of silicone [??] slabs we have looked at several different products that are oriented around using silicone to replicate the human body. We have had some challenges both with resource restraint as many startups do but also with the quality control and [??] manufacturing capabilities.
We had a silicone eye that was used for training and testing purposes. Imagine an optometrist wants to practice a new surgical technique, you would rather practice on a synthetic eye than a human eye. We developed an eye that worked great in many instances but it couldn’t be all things to all people. There were also problems with logistics impacting the structure of the eye. Eye surgeons are very precise and any diversions from the metrics that we strove for caused great concern.
Ultimately, we had to shift our business model from the surgical practice to more of a demonstration eye for laser devices. At the time, it was very frustrating but I think ultimately, we found a better niche in the market because we failed to be all things to all people.
Andrew: Before you got into this, you were an investment banker. Why did you get into investment banking?
Oscar: I started my career at a big corporation, FedEx, which was great. I really enjoyed being a part of that team but I wanted to participate in the small business world. Specifically, I was intrigued in the transactions that take place between small companies and investors. The investment banking arena is a great place to witness that exchange. I knew I had this entrepreneurial itch and wanted to be my own operator and own my own business at some point. Investment banking, especially in the lower-middle market deals with a lot of small companies within some stage of transition.
My goal was to find a business that was at an inflection point where I could step in and inject some energy, enthusiasm, and raise some fresh capital to reinvigorate a Mom and Pop style business to be more of a high growth business. Ultimately, I didn’t find this opportunity in silicone arts slabs through investment banking but I definitely learned a lot including how transactions come together, how investors evaluate deals, and the pitfalls that small businesses can fall into.
Andrew: I studied finance in school for the same reason, thinking it would help me understand businesses and decide which ones to work on. I ultimately decided that the fastest way to learn about business was to just go and start a company. I have often looked back and asked myself what did I miss learning by not being an investment banker and analyzing companies. Is there one thing that stands out in your mind that you learned about how to analyze a company because you were a banker?
Oscar: Well, the saying, “Cash is King” rings true in any business. I think that in my time in investment banking, I saw so many companies that were cashed constrained and either headed for failure or had to sell at a really high discount because they didn’t have stable cash flow. Another thing I learned was that investors want to see the stable cash flow and if you can’t show that or show a path to that then they are not interested in backing a company. Regardless of how unique the idea may be.
Andrew: I hear this a lot, “Cash is King” or “Manage Cash Flow” so often that I have to take it seriously but at the same time I always wander isn’t it obvious Oscar that you need to have cash in the bank. Isn’t it obvious that you want to make sure, that as an entrepreneur, enough cash comes in every month to support you operations. Why isn’t it as obvious as it seems to me from the outside.
Oscar: I think that entrepreneurs often get so focused on growing customers, growing revenue that they lose site of the finite amount of time that they have to fund their operation whether that be taking a salary for yourself, being able to pay your team, being able to pay your vendors. It doesn’t make any difference if you have a huge purchase order from a multinational chain, if you don’t get the cash in time to pay your vendors and pay your people to make or deliver the product. . .
I think it is especially true in our business where we’re product oriented where you actually do have to purchase raw materials, maybe not as much in the software world where you’re dealing more with people. The investment parameters are much different for the [??] sectors, but I found in our business cash is super critical.
And we’ve had to cut marketing when it was working and we could prove that we were getting a good cost per conversion and our return on marketing dollar was strong, but if we couldn’t keep the lights on it didn’t make sense to continue to make marketing investments that would shorten our life.
Andrew: So let me over simplify that just to make sure that I understand it. You’re saying that if you spent money in January, you know that by June and July that money. . . If you spent money on advertising in January, you know that by June or July you’re going to get that money back and then some in the form of sales and profits. If you don’t have enough cash to keep your business growing and going until that time, until June or July, it doesn’t matter that that marketing dollar is going to pay off. You just can’t do it.
Oscar: Exactly. We had this situation this past summer. We had to cut marketing in August and September in order to give ourselves more time to complete a fundraising round that closed in October. Even though our growth was moderated, it was actually flat which was better than being down, but we had to be able to meet obligations with our suppliers and keep our people employed.
So it’s a tough decision, but when you look at your cash flow for the next six months, if you don’t have a plan to keep your cash flow going then you’re really just throwing money away because you’re not going to have enough time to reap the reward of that marketing investment or whatever investment you make.
Andrew: That’s one of the big frustrations of an entrepreneur, that we finally will find that marketing path that works, but we often can’t go after it until we find some money to pump into that marketing channel. Alright, let’s continue with your story and I want to understand how you ended up working with Matt Singer. Who’s he and how did you end up working with him?
Oscar: Yes, so this is one of the stories that truth is stranger than fiction. Matt Singer is my co-founder and the inventor of our lead Dermaflage. He grew up in New York, went to NYU Film School, went out to Hollywood to become a special effects artist and through some strange twist of fate he got tired of making monsters and werewolves in Hollywood and decided he wanted to get into the medical field making prosthetics. Well, he did a nationwide search and where people were building these prosthetics and it turns out that here in Memphis, Tennessee we have some very talented doctors.
Andrew: I thought we lost you there for a moment. Okay, so in Memphis, Tennessee, he found that there were talented people. Okay.
Oscar: Talented doctors working with cancer patients building facial prosthesis. So he relocated to Memphis and he became this facial prosthesis specialist and he was so adept at working with silicone from his days in Hollywood. It was a natural move for him and a great way to put his talents to use for good rather than for evil.
We always joke that he’s building vampires and making masks for the Hollywood set, but he’s really not improving lives. Well, now it’s obvious that we’re impacting people’s lives whether he’s building prosthesis or he’s coming up with a product like Dermaflage that can be sold direct to consumers and help them feel whole again.
Andrew: How did you connect with him? It doesn’t seem like someone. . . It doesn’t seem like you and he run in the same circles.
Oscar: No, not at all. We have become great friends and we’ve suffered through a lot of tough times and had a lot of celebrations. So we’re thinking [??] now, but definitely would not have run into him if it wasn’t for my wife, who met him at a charity benefit. I guess it’s three years now and she does market research for companies that want to launch new products.
So he had an invention sitting on the shelf that he’d not been able to market and he realized that she needed some partners to help him commercialize this invention and just happened that my wife is an expert at this kind of product innovation and new product launch. She has a consulting firm that does just that, so they get together.
I was helping them on the side still minding my own business as an investment banker, but helping them with some other financials. As things got going, they launched a website and all these customers from all over the world started coming in.
It was very evident that in order for this business to succeed somebody had to get in with more of a sales finance marketing acumen and run the business because Matt is a very talented creator inventor, but he’s kind of like the mad scientist who wants to stay in the lab and he doesn’t want to deal with all the minutiae of the bookkeeping and dealing with investors and setting a marketing plan.
Andrew: . . . [SP] . . . Mixergy and doing interviews.
Oscar: Yeah, right. Well, he would probably like this. His stroking the ego is never hurts for a guy. I used to be in Hollywood, but . . .
Andrew: Did you end up 50-50 partners in the business or does he have more because he was there before you?
Oscar: Well, it’s actually convoluted, but the short story is my wife and her company we formed a venture group that formed a joint venture with Matt and his technology. From that standpoint, my wife’s company owns 50 percent. Matt owns 50 percent and then I’m also an investor in my wife’s company, so I own a portion of the company through that. It’s a fairly equitable way to split it because without either half, without the technology and the creative inventor side of the equation all of the marketing and finance strategy doesn’t work and vice versa.
Andrew: Your connection with Dan Rather helped form the company. What happened there?
Oscar: Right. So, this goes back to Matt’s time in Hollywood when he was working in special effects. He became known as the silicon guy for working on vampires and monsters and werewolves. When HDTV became very popular in the 90’s, they were having trouble with news anchors and the HDTV was showing all of these blemishes that their makeup artists couldn’t hide.
Dan Rather had a skin cancer removed from his nose and it took a big chunk of skin out when they removed the cancer. So, they called in Matt as kind of the special weapon to make Dan Rather look good on TV and he used an early iteration of this Dermaflage product to use silicon to replicate skin and that’s kind of when the light bulb went off that he could use this silicon technology to help people feel whole again.
Andrew: I see and I see on your website people who have a scar like there was one example of someone who had a scar right down the center of her forehead and then using your products she was able to cover it up and it was like it was never even there. That’s the idea.
Oscar: That’s it. It’s a topical filler. So, imagine covering a hole in your wall. You can either paint over the hole until the hole eventually fills in or you can fill the hole with spackle and plaster it so it’s smooth and that’s what our product does in a very crude scenario. It’s essentially a better band aid, but it’s such a good aesthetic match because it fits to the tone of your skin and it fits the texture of your skin.
Andrew: So, if I were going to sell this, there’s so many different ways for me to do it. Direct to consumer, through pharmacies, through doctors, through cosmetologists. Did I miss anything? What are the other options?
Oscar: Well, through a major retail chain.
Andrew: Through a major retail chain outside of a pharmacy, outside of like a CVS? What other kind of . . . before you tell us what you ended up doing, what other option is there?
Oscar: Department store makeup counters would be an example.
Andrew: I see.
Oscar: Very expensive sales channel to support. Another one would be a specialty cosmetics chain like a Sephora or an Ulta. We’ve tried the first category you mentioned, physicians, dermatologists and plastic surgeons and while they were all very intrigued with what our product could do it’s a daunting proposition to sell any product through medical channels because you have to essentially hover in their waiting room until they give you the time of day to actually catch them between their meetings.
There’s another factor that’s very hard to overcome which is the economics of the alternatives that these aesthetic physicians have which is all kinds of minimally evasive surgery techniques like Botox, injectable fillers, lasers. They can make a lot more money offering those kind of services to their consumers than they can selling them our product which we retail for $50. We offer it on a wholesale basis to the doctors. They can mark it up and make a decent amount, but when they can make $400 a pop for Botox or $300 for laser, they’re going to go with those kind of treatments as the first rule of thumb and . . .
Andrew: Is it close to a product that retails for 40 bucks and then their cut is significantly smaller than that?
Andrew: I see.
Oscar: So, we’ve kind of morphed our strategy into we want the doctors to know about our product from an awareness perspective and we want them to be able to say, yes this is safe, yes this is dermatologist tested and approved, but because it’s not a prescription drug we can go direct to consumers and that’s where we’ve been the most successful. It’s going direct with the eCommerce strategy as well as some of the TV infomercial options with QVC.
Andrew: How long did you spend trying to go directly to doctors before you realized it wasn’t the right approach?
Oscar: Well, I would say the first three months of me joining the team. I just didn’t take it for granted that these doctors wouldn’t recommend such a revolutionary product that would help their customers. After banging my head against the wall for about three months hovering in doctors’ offices and having them say yes, this is a wonderful product. Then not ever following up, not recommending the product, we said there’s got to be a better way.
Why don’t we see what we can do about diverting our resources more towards ecommerce and driving customer awareness through interactive ads which while they require some amount of expertise and skill and knowing how to spend that money, it’s very easy for a small company to get started with Google AdWords.
Andrew: And so you decided to start Google AdWords next after doctors weren’t the right approach. Is that the next approach you took?
Oscar: Right. So, we allocated a small amount of money. We’re talking $1,000, $2,000 a month and we started tinkering with it ourselves, our team internally and then we saw some initial success, but we also realized there’s a whole lot more to this than we have time to figure out because we’re trying to run the business. I think to be adept at the interactive marketing; you really have to immerse yourselves in it.
So we’ve worked with a couple different freelancers and we’ve tried some smaller firms. We still haven’t figured out the right equation. I think the talented people in that industry are almost priced out of our start up budget, but we have been able to see good success and a good ROI in that marketing spin.
Andrew: It’s still profitable for you. I’m actually right now on Google. I typed in hide scar. Did a search. Third response from the top is Dermaflage.com, your website with a phone number up on there.
Oscar: Good. That’s where we want to be.
Andrew: How much money are you spending right now on Google ads?
Oscar: Well, we just closed on a small round of capital, so we were able to increase our budget to $5,000 a month. That is kind of the sweet spot we’ve seen. We’ve spent more and we’ve spent less, but we have found that that’s kind of the right balance for that particular channel.
Then there’s a lot more that we can do on YouTube that essentially tells our story before the customer gets to the website. Essentially our own infomercial. That’s a very good cost effective strategy for us as well. It’s such a visual product if you can see it demonstrated in live video. People seem to believe it more than before and after pictures which can be doctored. You know, with the magic of Photoshop you can make anything look amazing.
Andrew: If you show a video of someone actually changing the way they look and explaining why it’s happening then it’s much more compelling. I could understand that. So, I usually only ask people this question when they have a recurring revenue model. It just occurred me, I should ask you the question. Why did you decide to go with your model instead of charging monthly or quarterly? Why did you decide to just charge once and then require people to come back to your site to buy more when they’re ready?
Oscar: Right. We tried the subscription model at the outset. We had a couple of issues. One was our ecommerce platform didn’t handle the recurring purchase at different amounts because you have to select what refill items you want. That was something that could be overcome with some savvy programmers and maybe a new web platform, but the other problem was a little more intrinsic to the nature of our product.
If you have a large scar and you’re filling it, you’re going to use more silicon than if you have just a tiny acne puck mark or an enlarged pore. So, people have different intervals. One person orders every month. Another person orders every three months. And some people order even more frequently than that. So we had essentially allowed our customers to come back when they’re ready.
I think down the road we’ll try to figure out the subscription model, and give them the choice on the frequency. But we didn’t have an easy off the shelf solution right out of the gate.
Andrew: I did a view source on your website and I see something called worldsecuresystems.com. What is that?
Oscar: So that is the e-commerce infrastructure from Adobe. It’s pretty much branded Adobe Business Catalyst. But World Secure Systems is somewhere in the mix.
Andrew: I see.
Oscar: We chose this off a recommendation that it was something that would service our needs at a low cost to develop, and it would give us a visually compelling platform to present our product. Now ask me if we’ll be equal with Adobe Business Catalyst this time next year. Probably not.
We’re running into a lot of the things like the subscription model that are problematic with an off the shelf platform. And I think there’s more robust e-commerce platforms that could maybe allow us to do some interesting things that would be easier on the customer and easier on the back end as well.
Andrew: I see. What other challenges are there with using Adobe Systems? There’s can’t do recurring revenue easily. What else?
Oscar: Well, in order to do some of the more interesting visual effects, a lot of it has to be custom-coated, so we went into this with the expectation that we could do a lot of the uploading of photos and comments and quotes and news, press releases on our own. But if we want to have it look the way that we think it should look to keep up with prevailing trends on the web, we had to do a lot of custom code which requires you to go back and pay an Adobe Business Catalyst expert developer to code it.
Andrew: I see.
Oscar: And all the development expense associated with that.
Andrew: That’s makes sense. On the plus side, like you said, you do end up with a really nicely designed site. It does look good. All right. So let’s continue then with the story. You did that. It took you how long to turn profit, to get a decent number of customers at a profit from Google ads?
Oscar: Right. So I think we really just turned the corner after a year of tweaking our Google ads program to get our cost per customer acquisition below our gross margin per product.
Andrew: A year. Wow.
Oscar: We were okay with that because we knew we were building our customer base and building awareness. But the conversion is what you’re ultimately after.
Oscar: So it took us about a year for that to really be optimized. And several freelancers and interactive marketing gurus later, we’ve kind of got a hybrid where we manage some of it and we call in for reinforcements when needed. But we attracted 5,000 customers in our first year on the market, which we were pleased with given our limited marketing budget,,, and the fact that we’re essentially 95 per cent e-commerce.
People that are willing to try such a radically different product for the first time via e-commerce is impressive to me. But we need to continue to penetrate that tip of the iceberg of people that are early adopters, so to speak.
Andrew: And then the eyeball business. At what point did you do that? Was that early on, and then you realized we have to stick with skin, or was it later on when you were looking for something else?
Oscar: Sure. So that business really took off in 2012 as we were working with a couple of the well-known med device companies sort of on a contract R&D basis. And we determined, there’s got to be a bigger market for this beyond just our few contacts. So we went to an ophthalmology show and showed our wares.
We sold out of our stock and had all kinds of big orders come in. And then we ran into some production challenges where the logistics of shipping the eyes was impacting the clinical viability of the eyes when they got to the lab where the . . .
Andrew: Why get into eyes at all? Did you do it because the skin business wasn’t going well enough or growing fast enough? Or was there another reason?
Oscar: Looking back on it, Andrew, it was pure opportunistic. We thought we had an innovative product that had a market. We did some preliminary research and we thought this could be another cash flow stream to support the skin business and ultimately we think that Dermaflage and the concealment market is much bigger on a total market basis than the eye business, but we thought we could put out the eye product and generate cash flow to support the growth of Dermaflage.
Andrew: Because it just seemed like an easy thing to do, you’d know how to do it well, let’s just jump on that. So easy as an entrepreneur to have those opportunities come your way and to just say yes to them. What did you learn from this? Was it about focus or something else?
Oscar: Exactly. You took the words from my mouth, focus. We have attracted a couple of board members to our team with a Proctor and Gamble background and they’re encouraged us to check out this book about their CEO at the time and current CEO A. G. Laughley [SP]. His book’s called “Where to Play How to Win” and it’s all about making choices.
For us it became exceedingly clear that we needed to focus our scanned resources on the bigger market potential which was the Dermaflage business and sort of put the eye business on the back burner.
It hurt to tell customers who were willing to pay good money that we were no longer in the business, but at the expense of spreading ourselves too thin it made all the sense in the world. You know, strategy is not trying to do all things to all people, but it’s really about how do you allocate scarce time and people and resources for maximum benefit. That’s what that book really hammers home is you have to make choices. Making no choice is essentially a choice to fail.
Andrew: Actually let me just make a slight change in the title. You told April it’s “Playing to Win How Strategy Really Works.” That’s the one, right?
Oscar: That’s it.
Andrew: That’s the book that taught you about the need to focus, but did you also learn how to focus from it because it’s hard to even notice when you’re going off track. It’s hard to even notice that. Well, I’m trying to put myself in your shoes because this happens to me a lot actually where someone will come up with an idea and I’ll say, you know what? I should do that. That’s similar enough to what we’re doing right now.
We should do what people want and let’s get into it and it’s not until a month later where I’m nursing this idea along where I’m realizing it takes more time than I expected that I kick myself for not having realized back at the beginning this is a totally new idea that’s taking me off track and will take more time than it seemed. How can you tell? How can you spot those ideas that will derail you?
Oscar: It’s really tough. I think the benefit of being a small business and entrepreneur is that you can be flexible, but it can work against you if you don’t have that focus. For us it came back to what’s out core competency, what’s our mission so to speak and I think a lot of people waste time with mission statements that are a lot of pretty words, but don’t really have any meat on the bone so to speak and we realize our mission is to create innovative cosmetic products that help people feel whole again.
The eye business was kind of an off shoot of our expertise in silicon, but it didn’t really fit of this orientation towards helping people with their appearance and it was more in line of here’s an innovative silicon product that we’ve made. Let’s see if we can generate some revenue off of it.
Andrew: All right, I get that. Let me do a quick plug here for Scott Edward Walker. He is my sponsor. The reason I’m saying he’s my sponsor is I looked at one of my transcripts from before and having read the way that I presented him, I was wondering if the guest even knew that he was a sponsor or even knew what was going on. So I want you to know. Oscar, I’m taking a quick commercial break here to say, Scott, thank you so much for sponsoring Mixergy.
Anyone out there who’s an entrepreneur who’s looking for a lawyer, I recommend you at least call Scott Edward Walker. The way to get his phone number is to go to walkercorporatelaw.com. When you do you’re going to see this (?). You’re going to see his site and see other people like him. You can probably find all of their email addresses very easily and check up on him and say, hey. Did you really mean what you said on Scott’s site? You’ll get, I believe a really good recommendation. So, check out Scott Edward Walker if you’re an entrepreneur and need a lawyer.
Oscar, QVC. One of the reasons I get especially excited about QVC is because frankly I have an ego too. I like to be on camera, you know? I mean, not the way that I look right now. I hate my hair. I’ve been playing with it a little bit. I need a haircut, but I like the attention.
I even as a kid used to dream of coming up with a product that was so good that it would be on infomercials, and then everyone would know me. I would also make sales, and so it would make business sense to be on there.
You got to be on QVC. How helpful was it?
Oscar: QVC is a great opportunity for a small business to gain awareness at somebody else’s platform. We thought that we had such a visually compelling product that if we could get on QVC, and it’s very competitive, by the way. I think they look at more than 5,000 products a year, and they only have so many slots available.
It’s a daunting proposition, but one that we think was worth the chance. It allowed us to develop some really good video content. They do all the production for you.
The way their model works is you go to up to their campus in Philadelphia, and their production, their cameras, their sales people, will help you think through your sale. Essentially, what you give them is you give them half whatever revenue you generate on their time slot. You get eight minutes to do your thing — six to eight minutes — and if the phones light up, they love you. If it’s crickets, then you get the hook.
Andrew: They pull you off in the middle of your program?
Oscar: They will switch to another show, another product, mid-program if you’re not producing.
Andrew: Did you guys get to make it to the end?
Oscar: We did. We made it to the end, and we got invited back. We’ve been on twice.
My partner, Matt, is the face of the brand. He’s the inventor, which they love having the inventor on there. He went and did a great job. We had recruited three different models to show how the product can fill in a frown line or a scar.
The host is a critical part of it. The QVC host sort of quarterbacks the eight minutes, and they turn to you as the expert. Hopefully, you’re showcasing the best elements of the product.
One of the things they taught us was you’re selling the promise; you’re not selling a drill. You’re selling the hole that the drill can make. For us, the promise is confidence. We really focused in on that. The other element is simplify your sound bites to a few words, and don’t try to explain anything complex in your short little segment.
Andrew: What’s your simplified-few-words sound bite?
Oscar: Dermaflage is a topical filler for concealing imperfections on the face and body.
Andrew: I see. How much time did it take you to get to that? I go to parties all the time. I see how hard people work to explain what they do, and they can’t explain it in a power graph, let alone a few words. How did you do it?
Oscar: Well, I think you get down to the core element of why customers buy your product. We spend a lot of time interacting with our customers and seeing what they say in their testimonials. There were recurring themes. One of the big ones is self-esteem and confidence. That’s kind of what we’ve put into our marketing.
Our corporate voice, so to speak, is that we want to help people feel whole again. It’s not as much a glamorous red-carpet kind of thing, it’s just “Hey, I want to feel normal. I don’t want people to stare at me.”
And even if it’s something insignificant, if you can give people that hope that, hey, we’ve got something that can help you feel better. That’s the key to getting people to buy the product and to keep buying it.
Andrew: Give me a sense of the kind of revenue that you can get from QVC.
Oscar: It’s very metrics-driven. The way that QVC deals with new brands, is they give you the rookie treatment. You have to prove yourself in the minors before you can make it to the big leagues.
The minors are the equivalent of the over-night hours. From midnight to four [??], those are mostly where new brands get their start. You’ve got fewer people watching. It’s less a risk for QVC because their core asset is inventory of air time. They’re giving you this kind of less-attractive air time to work the kinks out, get your production down, and then see how you perform.
Then as you prove yourself, you get better and better time slots. In the overnight slots you are expected to bring in $2,000 a minute — that’s revenue figures. If you are on for eight minutes, you’re expected to sell $16,000 of product.
Andrew: How did you do?
Oscar: We did in line with those expectations, so the really Holy Grail is to get on at their more peak times. And we’re still negotiating with them on our next airing and,,, hopefully, we’ll get a better time slot when we do go back on. But at the peak times, you’re looking at making $10,000, $15,000, up to $20,000 in Q4 which is their biggest time of the year.
Oscar: Permanent. Right. So that’s times six or eight minutes. And there’s some brands that are on what they call today’s special value. And that is where you get to go on once every hour.
Oscar: And that can sometimes bring in $4,000,000, $5,000,000 in a single day on QVC.
Andrew: I see. Because I’m looking here at my notes. And I can see that they want packaging and testing. They want third party testing. They want lawyers who are in tune with FDA testing requirements. Ba, ba, ba, all this work just to get on in the middle of the night for a test, and now I can see why you’d want to do it. Because if you can make that work.
Then you can get on a better slot and make more money, and then an even better slot and then all that upfront cash pays off. So I’m imaging that there are people who are in the audience right now who are saying, I want to be QVC just like Oscar. What advice do you have for them that will help them get on QVC?
Oscar: Well, I would say if you’ve never done infomercials, then you need to find a broker that is experienced with QVC or HSN or ShopNBC. Those are kind of the three biggest ones with QVC being the largest. The broker is usually all commission based, and so they only get paid when you’ve had success. But they’re in tune with what it takes to jump through all the hoops. It took us probably six or seven months from when they gave us the green light to say, yes, we want to give you a shot to getting all of their regulations out . . .
Andrew: This is that long after you get the okay?
Andrew: Whoa. And the broker helps you get the okay?
Oscar: Well, the broker will help you get the sales meeting on the front end because they have some credibility with the buyers at QVC. The buyer knows that the broker is not going to take on a new product that they don’t believe can have some success. So that’s kind of an initial screen.
Andrew: I see. And the broker doesn’t get paid until you get paid, and so he or she has to really screen you?
Andrew: How did you find a broker? How do we find a broker?
Oscar: For us it was word of mouth. And I think that’s probably the best way. If you know anybody that’s been on QVC, reach out to them and ask them who they use. And they may not be the right broker for you because they deal with food. For us, we knew a company called Corky’s that sells barbecue ribs on QVC and they do really well. They introduced us to their broker. He said, look, I’m not the broker for you, but my friend does cosmetics and she’d take a look at it.
So I think if you can find somebody to be a word of mouth, you could probably do a Google search and find a QVC broker or consultant, but it really comes down to kind of a personality fit. Because you’re going to be working in the trenches with these people for six to eight months.
And you have to have somebody that you can get along well with, and you find that personality fit where they believe in your brand and will go to bat for you. Because they’re usually the ones that are doing most of the interaction with the buyer.
Andrew: All right. So now you have a product focus.
Andrew: Product focus. You can prove that it works. Right. Product works. You have some revenue and you have marketing that’s been working. You take this to investors and they say what?
Oscar: Mm. Cosmetics.
Oscar: I’ve never done anything in cosmetics. Maybe I should ask my wife or girlfriend what she thinks of this product.
Andrew: Oh, okay.
Oscar: So in our experience, that’s not a good answer. Most venture capital investors, angel investors, are not in tune with cosmetics. Because look at the demographics. They’re mostly 50-year-old white guys. And we find that educating them on the space was a big part of the battle. Because their worst fear is that they invest in something they don’t understand.
So we sought out some people in the industry that have domain expertise. And the conversation is much more efficient, and it goes much better than trying to educate somebody on the cosmetics industry, consumer product industry. Which is a little difficult because they might not be in your hometown, but it’s worth getting on a plane and going.
So when we got a meeting with somebody that had had a great career at P&G, and had since gone on to launch his own personal care product line, we got on the phone and we got on the plane. They said we’re going to be in your city. Which we really weren’t. We just used that as a way to [?] tee up the meeting. He took the meeting! You know what? He was impressed.
We won him over and he’s now on our board. He has invested himself, but he has introduced us to a lot of people that have helped our business alone.
Andrew: I see. So it’s a matter of finding the investor knows the space because otherwise it’s just so far and they go to their wives?
Oscar: We have raised some friends and family money. I think that’s where all entrepreneurs start out. Those people are betting on you as a person and your team. You get the benefit of the doubt that “hey maybe I don’t understand the space, But I know Oscar or I know Andrew and he’s a really smart guy. I’m going to give him some money and see what he can do with it.”
So once you exhaust that amount of capital and you’re looking for bigger dollars. You need a little more industry experience to help make connections, that’s when I see the gain on a [?] plane going toward the successful entrepreneur.
Andrew: What about revenue? Where are you now?
Oscar: Today we’re on a run rate to do about half a million dollars for this year. This is our second year on the market. So we’re pleased with where we are. We’d like to be a lot further along, but we also know that we’re competing with brands like L’oreal and Estee Lauder. The next step for us is really going from a pure e-commerce model to [xx] distribution and a brick and mortar chain. Whether that’s an [xx] drug store chain. Our product needs to be accessible at shelf.
Andrew: You said going to be a run-rate of 500 thousand dollars by the end of the year. What does that mean? Does that mean taking last month’s revenue multiplying it by 12, you end up with about half a million dollars?
Oscar: You can do it that way. We look at it as our average for 2013 is x times 12 is 500k. That’s kind of our run rate for year to date.
Andrew: I image before you got into investment, you really needed to get the break even. Did you break even?
Oscar: No. We have not broken even yet.
Andrew: Okay. So how does that feel. To have all these friends and family invest in you? To have given up a job that as an investment banker, which is safe. For a risk to yourself and all of these people that are counting on you? How does it feel day to day?
Oscar: Andrew, I say that being an entrepreneur is the intersection of joy and fear and I can’t remember where I hear that quote, but it really is. I wake up excited to come in the office. Every day I wake up at 2 AM with a great new idea I can’t wait to talk to the team about. It’s also a little nerve wracking when you’ve asked your friends and family for this money.
I’ve sunk a lot of my personal finances into the business. It’s a risky venture to start something new from scratch. It comes back to you and your fortitude to make it work and also keep the lights on and be able to provide for your family.
Andrew: This is so strange. I woke up in the middle of the night last night. I remember the time. It was 1:39 AM. Olivia noticed that I was awake and she said “What’s going on? Are you OK?” I said, “I’m just worried.” I think she asked me what I am I worried about and I don’t even remember, but I said “I don’t know”, and I don’t know what I’m worried about.
There’s just this sense of worry sometimes it comes over. I’m not worried necessarily that I’ll screw up this interview. In the past I’ve worried about that. I’m not worried that we won’t have enough money to keep [xx] going, but in the past I’ve worried about that. There’s nothing specific. Maybe it’s just habitual worry. I get up in the middle of the night and I thought that was just me. I remember asking Fred Wilson, who I thought was the guy who made it. He is an investor in companies like Twitter.
So he’s one of the most successful investors out there. he seems to have an easy going lifestyle and still he told me, you know what, last night, the night before we spoke he woke up with this kind of worry. Does that happen to you?
Oscar: All the time. I really enjoy hearing you talk at the “Everywhere Else” conference in Cincinnati a month ago. Your description of these positive thoughts that relate to your success and the negative thoughts and anxiety and fears that creep into your brain, that really resonated with me because you can be derailed by all of these anxieties that will take you off of your focus and you’ll be playing defense instead of offense.
And I found it so important to take time out whether it’s through meditation, prayer, exercise, what have you and try to center yourself on what should I be doing at this moment, what’s critical to my success and try to clear your head from all the worry and fear that creeps in.
Andrew: I’ve also had the opposite as an entrepreneur because you’re right. That worry you just have to work to get rid of it. It’s the prayer I’ve seen some people in interviews do it. Through exercise I think the first person who I noticed talk about that was Tim Ferriss in his interview when I asked him, why bother even exercising? I’m an entrepreneur, I’m too busy. Then he said, well here’s how it helps.
It changes your mindset and allows you then to do better at work. There are other ways to do it. What about on the other side? You ever get to a place where because you’re an entrepreneur, because you’re running your own business you feel like, oh my God. I’m in the zone here. Like, I can handle this problem like it’s nothing and I’m going to wow myself and anyone around me is going to feel amazed to be working with me.
Oscar: I think every entrepreneur has that adrenaline rush when you’re on top of your game, you’ve prepared for the meeting and you can handle whatever question comes because you’ve immersed yourself in this business. I felt that way after meeting with investors thinking we just crushed this meeting. There’s no way they can’t write a check and then they shake your hand, slap you on the back, say great product I really am inspired by what you guys are doing. Let me follow up with you.
Then the follow-up never comes. I think the key for entrepreneurs to maintain their sanity is to sometimes have a short memory and a thick skin.
Oscar: Because if you let every no get to you then you will never have the confidence to get back out there and ask the next person whether it’s that sales contract or it’s an investor, you’ve got to sort of have nerves of steel and a thick skin and just forget about the past and move forward with confidence that you’ve thought through your plan and you don’t have it all figured out, but here’s your strategy and here’s the assumptions you’ve made. You know, make people a believer. You have to lieu.
Andrew: Oh, yeah. May have to get yourself to believe it because they could pick up on those little signals that you don’t believe it and then they don’t believe it. I gave people who came to that conference beads like these. We use them as focus beads to focus on things we want. Give me some feedback as an entrepreneur, as a person who sees the message behind this that we have to focus on.
I believe we have to focus on things we want and the thoughts that are helpful and get rid of all those worries, get rid of all those unhelpful thoughts. Some of them come from other people who say, are you sure you want to be an entrepreneur? Did you make the right decision? How about you’re not as smart as this other guy. Give me some feedback on this process with the meditation beads and how they help with focus.
Oscar: Sure, so I am taking your advice to heart and I feel like it’s a great reminder whether it’s beads or it’s a gold sticker that you put in the corner of your computer to remind yourself to stay focused and stay positive. I think it has to be suited to the individual. For me, sometimes it’s just getting up from my computer and taking a walk around the block to clear my head and to get some fresh air and to kind of decompress, but exercise is critical.
I find if I don’t get it in, in the first thing in the morning then I’ll never get it in. So, I try to wake up before the family and at least get a jog around the block before I get my day started. That really helps me start on the right foot and kind of get my mind right before I go into the chaos of what the day is going to bring.
Andrew: If you’re watching I don’t have any place for you to go and find out more about this. I happen to talk about it at a couple of conferences and with a few people at Mixergy Premium. I’m going to find a way to talk about it more on Mixergy, so right now I have no way of sending this to you.
I just want to keep experimenting with people and getting feedback one on one and actually sometimes it’s one on one, sometimes it’s talking to a few dozen people or few hundred people, but want to get this right and then I’ll tell you more about this because I think it can have big impact.
I’m actually hoping, Oscar, that this is a legacy message that I’ve been waiting for, that I’ve been doing Mixergy for. We’re almost there. I’m developing it and I appreciate the feedback you’ve given me. Let me end this with this final question. I think that I ask the revenue question a lot because no one asks it?
But obviously that’s not the only reason to build a business. It’s not the reason to deal with the worries, it’s not the only reason to take on these risks. One of them is to see the impact that you have on people. Have you seen that, where people will show you the change that you made in their lives, or email you, or send you letters?
Oscar: Yes. For our business, it’s very tangible. We get wonderful testimonials that we post on our Facebook page, we post on our website, Dermaflage.com. These people have had a life-changing experience, because they’re able to conceal a blemish that really paralyzed them psychologically.
When we do demos in person, it’s so fun to see people’s faces after you apply the product, and you show them their face in the mirror for the first time. You just see the tears well up in their eyes, because they’ve been worried about that scar on their cheek since they got it when they were 13, and you just see it melt away.
I’ve seen grown women bouncing around like giddy schoolgirls, and it may seem insignificant, but I’ve got a new appreciation for it. It kind of reinforces how important what we’re doing is. It gives us excitement to come to work, and get the message out there, and help people feel better about themselves.
Andrew: Yeah, I can see that. Oscar, thank you so much for doing this. Everyone else, thanks for being a part of it. If you happen to meet Oscar at a conference, or at a dinner, or see him anywhere, ask him if he has this skin on, so that you can see it. I think that we can talk about it, and you can see it on a webpage, but until you actually see it in person and touch it, you won’t believe how realistic it is.
I mean, really, we had to spend some time looking at where it was. I have a hard time just touching people, Oscar, but you had your hand out there. Usually it’s a handshake and you move on, but I just kept touching that area, I forget where it was, but I just kept touching it to see, “Does it feel different?”, and it didn’t feel different. It was a really interesting, cool experience to see that, and I’m hoping people who meet you in person get to experience that too.
If you don’t get to meet Oscar in person, find a way to say thank you, to him or any other guest that you see on Mixergy or anywhere. Do not be just a passive viewer. The reason I say that over and over again is because I’ve noticed that people who reach out to guests and say “thank you,” people who reach out to bloggers and say “I saw your post and it was helpful to me,” end up connecting with the people they admire, and end up building relationships that can’t be duplicated by just reading an article or watching an interview.
Take this offline. Take this and connect even further. If you got anything of value, let Oscar know. It’ll be good for him to know it, and it’ll also be good for you to get into the habit of doing it, because I know the relationships you get from it will have huge impact on your life. Thank you so much. Looking forward to all of you following up.