The Honest Company: No Smoke & Mirrors
E-commerce startup turned global lifestyle brand refines model to create a culture of honesty
Markets have deemed The Honest Company (“Honest Co.”) a start-up unicorn, with a $1.7 billion valuation after several rounds of funding. The Santa Monica-based brand arose to fill a significant gap in the baby retail industry for products that didn’t contain petrochemicals or synthetic fragrances. It has become wildly popular with those millennials and parents willing to pay a premium for peace of mind. Honest Co.’s business model is in close alignment with its sustainability- and transparency-driven operations.
Business Model …Simple Vision & Customer Promise
From its beginnings, Honest Co. made clear what it stood for: effective, “unquestionably safe,” eco-friendly yet affordable baby and home products. This message resonated with mothers, bringing quick success to the brand’s baby product line and its non-toxic, plant-based diapers and wipes in particular. Honest Co. has since introduced a wide range of personal care products, household cleaning supplies and lifestyle essentials for the entire family. The company has inventory available both online and at select retail outlets in the U.S. and Canada. It has plans to expand into Europe and Asia in the near future. Roughly 80% of revenues come from its monthly subscription service. [1]
Operating Model “Honest is in our name and everything we do.” [2]
Product Development & Production – Honest Co. designs, formulates and manufactures all of its own products. Early on, it invested in the vertical infrastructure required to maintain control over the creation of chemical-free and sustainable products from scratch. As a result, all product lines and collaborations reflect the customer promise. Many attest to seeing alleviated symptoms of allergies and dermatological issues in their kids. As the company establishes itself as an authority in the space, it underscores sustainability in its sourcing, production and packaging practices. For instance, Honest Co. continues to:
- Track all materials and ingredients used so customers can see the entire cradle-to-grave impact
- Source natural, organic, sustainably harvested, renewable raw materials for all products
- Seek the most credible suppliers and raw materials geographically close to operations
- Minimize petroleum-based plastic in product packaging; only use recycled shipping materials
- Specify and closely monitor QC standards/protocols in manufacturing to ensure quality, cleanliness and overall ingredient integrity [3]
Honest Co. extends its sustainability model to all aspects of operations, including employee work environments, waste management and energy usage. For example, all electricity used in HQ and warehousing is from 100% renewable sources (by purchasing REC). Electronic and fully automated management systems help dramatically reduce paper, printing, and copying usage and supplies. Facilities feature energy efficient lighting, electric forklifts, and full recycling programs for all shipping boxes. Office spaces utilize low-impact and non-toxic materials, from furnishings to water filtration. [3]
Distribution – Honest Co. started out solely as an e-commerce platform, a strategy aligned with serving the modern generation of parents, and leveraged technology to build the brand. For its target market of busy but conscious moms, convenience is a real factor. So the brand took a gamble to launch as a subscription service—long before the Birchbox model became common. Parents are invited to sign up for the recurring delivery of monthly bundles of any five items. Bundles represented 35% in savings over the sticker price. [4] Subscribers pay up front, providing predictable revenue and cash flow. Customers are also free to buy individual products on a one-off basis without subscribing to a bundle.
Over time, the company began to sell products wholesale to various retail partners, such as Target, Nordstrom, Buy Buy Baby, Whole Foods and Costco, as well as local high-end mommy-and-baby boutiques. This move gave Honest Co. access to an even wider audience. In-store purchases might encourage more customers to become members on Honest.com and sign up for auto delivery once they have trialed the products. This has the potential to be an effective customer acquisition channel.
Sales, Marketing & Merchandising – From the beginning, Honest Co. made it clear it was a company that consumers could trust. Paying for the domain Honest.com and similar trademarks has paid off. This simple yet brilliant branding, combined with highly-effective celebrity endorsements, led to glowing press. Cofounders Jessica Alba, actress, and Brian Lee, serial entrepreneur, made for a dynamic duo with high aspirational qualities and a bold story. Christopher Gavigan, former CEO of Healthy Child Healthy World, signed on as Chief Product Officer.
Honest Co. also innovates in its merchandising strategy. It launched the Collective, featuring collaborations with premium brands and designers committed to the same values. Recent limited-edition items include a crib collaboration with Babyletto and a diaper caddy produced with b.box.
Mission & Culture – Honest Co. unifies its environmentally sensitive products seamlessly with its social mission, gifting a portion of all revenues to various non-profit organizations. Its charitable partnerships include Baby2Baby, World Wildlife Fund and the YMCA. The company also donates diapers and cribs, similar to the “buy one, donate one” model of startups like Warby Parker and Toms Shoes. [5]
The brand’s loyal fans are enthusiastic and vocal. Honest Co. fosters this community over social media, quality content and noteworthy campaigns. A recent social campaign promised a $1 donation to the MaxLove project for every “Like” on Facebook. Product discovery and lifestyle advice is also available via the company’s widely-followed blog.
Kaizen Mentality – Honest Co. maintains an organic connection with parents around the world who provide honest feedback on the brand’s products. Really listening to the customers remains an engine to innovate for the needs of modern families. Receiving over 5,000 calls a day, the company uses this communication to continuously improve and iterate on its products and processes. [1] For example, Honest Co. baby wipes received disappointing reviews when the product was first launched. The company pulled the wipes, reformulated and re-launched them in a matter of months. They have been a bestseller since. [6]
Safety sells, especially when it comes to our children. With Honest Co.’s strong alignment of its business promise and operations, it will likely continue to see envious levels of growth. It is a winner.
[1] http://blogs.wsj.com/venturecapital/2014/08/26/jessica-albas-the-honest-co-raises-70m-preps-for-ipo
[2] http://www.huffingtonpost.com/jon-bird/a-company-for-today-honestly_b_6948062.html
[3] https://www.honest.com/about-us/health-and-sustainability
[5] http://fortune.com/2015/08/14/jessica-alba-honest-valuation
[6] http://www.trust.org/item/20140914200427-6z5oq
This is very interesting, Joyce. I have one question. How aggressively do they communicate the fact that Honest Co. “extends its sustainability model to all aspects of operations.” As you point out, this sustainability play is very much in line with the rest of their model and seems to underscore a corporate ethos. Do they make this clear on their website and blog? Do you think it is a way to get and retain customers, and build a more holistic image? Or is it just a natural outgrowth from the mentality of the founders?
Thanks for introducing me to this company, Joyce. Sounds like a concept that is working (particularly love the subscription model), and growing rapidly ($150 Mn in revenues already).
I am just curious as to why existing baby foods companies (e.g., Nestle) with decades of marketing muscle, distribution expertise and top-quality talent, cannot step in and crush companies like these over the long term. Building consumer brands (esp. on high sensitivity areas like food for babies) is super hard, and a PR disaster around quality or efficacy of products can really doom the company. I know they go out of their way to convey the safety aspect which is a good thing, but creating a negative buzz, even if done so nefariously, can seriously impact the brand. At $150 Mn they are probably not hurting the biggies as much yet, but once they scale to say $500 Mn in revenue, it could be a different ballgame altogether. Just curious as to how you would assess this company once it starts competing with the bigger and more established players in the real sense.
But thank you for this post, I will begin to track this company more actively.
While I love Honest products myself, I wanted to add that Honest has been struggling recently to live up to the very high standards it has set for itself.
In September, Honest got sued for ineffective sunscreen. In addition to the baby wipes I believe Honest’s quality control should be scrutinized. Arguably, having ineffective sunscreen is worse than having a more sustainable sunscreen. http://money.cnn.com/2015/09/04/news/companies/jessica-alba-honest-company-sued/
Moreover, Honest has been sued for mislabeling “synthetic preservatives Methylisothiazolinone and Phenoxyethanol, a synthetic surfactant called Cocamidopropyl Betaine, and the petrochemical-based Sodium Polyacrylate”. http://www.huffingtonpost.com/entry/jessica-alba-honest-company-lawsuit_55eb2518e4b002d5c0763ab8
This makes me wonder, is Honest fear mongering new (and scared) parents into buying their products, which might not have any proven benefits for children and are not so honest after all?
Joyce, thanks for sharing your thoughts on The Honest Company — really interesting post. I especially liked your point on The Honest Company’s adoption of the kaizen mentality. I remember when they had an issue with their sunscreen, and they worked to remedy that issue as well. It is encouraging to see a company focused so heavily on supporting parents who want safe products for their children.