50 - David Chung, Farmacy Beauty & iLABS

Conor Begley: Today's episode is a big episode. With today's episode, we've hit 50 episodes of Earned and just hit the 10- year mark for helping to start Tribe, so I thought it would be fun to reflect on the last 50 episodes in the last couple years of Earned. We've had CEOs, CMOs, and founders at brands like Ulta Beauty, Harvard University, North Face, Hollister, Olaplex, Alo Yoga, ColourPop, Gymshark, Gucci, and five of our companies got acquired, Tula, Supergoop, Youth to the People, Sweaty Betty, ILIA, Milk Makeup, we actually had six, and all for hundreds of millions of dollars. Two other of our companies have announced that they surpassed $100 million in revenue in Glow Recipe and Hero Cosmetics, and the show is growing, so our YouTube channel over the last 365 days is up almost 100% year-over-year from April of *2022* to April of 2020, the downloads have grown by 4782%, and we did all this while switching from a in-person format to a virtual format. With that, I'd really like to thank everybody that contributed to this, whether it was the listeners and the guests or our production crew, including Dan Weir, who helped us launch the show and ultimately guide the show. Then the biggest shout out of all to Taylor Masket, who's my right hand in everything Earned related. As part of that, I also want to make a few announcements. As you guys know, we joined forces with CreatorIQ just a few months ago, maybe five, six months ago now, so we're going to make a slight name change. It'll still be Earned, but it'll be by CreatorIQ. We'll also be giving away $100 to 50 of our listeners, so follow for details on that. Then also, hopefully, we'll explore some new formats this year, maybe some shorter stuff, maybe a little bit higher frequency, we'll see, but thanks again for sharing the word and for being a part of the community we're trying to build, excited for the next 50 episodes. Thanks again, guys. Keep the recommendations coming and we'll try to keep working to make this thing better.

Intro: Influencers, inspiration and Instagram, Instagram, Instagram. This is Earned by Tribe Dynamics. Here's Conor Begley.

Conor Begley: Hi, everyone. Welcome to Earned. I am pumped today. I have a good friend, good long-term friend, David Chung on the show today. Welcome to the show, David.

David Chung: Thank you. Thank you. It's really nice seeing you, Conor, and finally, we are doing this.

Conor Begley: I know, I've been talking to you about it for months and I finally got you on here, so I'm excited.

David Chung: I'm excited too.

Conor Begley: For those that don't know, David was the founder and CEO of Farmacy Beauty, which he just sold to Proctor & Gamble. Prior to that, he was the founder of Englewood Lab, which he also sold off and did very well with, and then most recently was the founder of iLABS, which is an independent lab and, similar to Englewood Lab, production company for brands that does some really cool thing with up and coming people that want to create their own brands, so we'll talk about that a little bit today. Then for part of the reason that we're connected at Farmacy is Farmacy itself was one of the top performing brands we saw in the entire skincare category when it came to EMV and influencers, I think finishing 2021 in our top 10 brands in skincare. So congrats on all your success, David. It's obviously really impressive.

David Chung: Thank you. Thank you, Conor.

Conor Begley: David, I think at one point offered to exchange equity with my co- founder and I, and we should have done it, because he sold his company for five times as much as we sold our company for, so you live and you learn.

David Chung: Yeah. Yeah. I remember the conversation about three or four years ago, right?

Conor Begley: Yeah. We screwed that one up. Obviously, I know, we talked a little bit about Englewood Lab. We talked about Farmacy Beauty. We talked about iLABS a little bit, but I actually want to take a hop back before that. I think for a lot of people that listen to this podcast, their goal is to get to where you are today, because it's obviously, a pretty impressive list of accomplishments. I know you've always fancied yourself as a brand builder. I know that's part of your history as well, but give me a little bit of the history before Englewood Lab, what were you doing? How did you get into the beauty industry, and then what led you into the last 15 or so years?

David Chung: Well, I always been a serial entrepreneur. My first company I started right out of school when I was 23, so I really never had an opportunity to work for anyone. I don't know if that's good thing or bad thing. First was retail store and it was when before the Blockbuster really existed, I did the video rentals and stuff, and then continued doing different types of business. I did the fashion. I represented Emilio Pucci at one time when I was 26- years- old. Then so my first business in the beauty, it was a retail store called Cosmetic World, which I had seven stores. It was a small high- end store. We carried about 40 different brands, mostly like La Pierre inaudible De La Mer, Chanel, those brands mainly in the West Coast. That's where I got an idea that," Why am I keep selling brands that I have no equity on?" I realized I should have my own brand where I own the equity. So that's when the idea came about and I studied my first brand called 3LAB. 3LAB Skin Care, I sold in my store for a while. Then people keep asking me," Where is this brand sold other than Cosmetic World?" I felt that I needed brand credibility, so I launched in Saks Fifth Avenue, at the time it was Debbie Waters there. After we launched Saks Fifth Avenue, we moved out to Barneys and sold nationwide in Barneys and did extremely well and what's an interesting story about how I got into contract manufacturing, Englewood Lab was while I was a launching 3LAB, or running the 3LAB brand, I was really, really frustrated with third- party contract manufacturers out there. I wasn't a L'Oreal. I was a small guy, I was running small batches and small runs, so always treating me like second class citizens, and it was very, very difficult. That's why I decided that,"You know what? I think here in the East Coast area, we really need some good contract manufacturing," and I could see there's so much demand for that kind of service. Then I started Englewood Lab and really all I did was give them great service, what I was missing when I was doing pre- lab, and it just grew. Obviously, I had no idea what I was getting into, because it was a lot of work. Anything about manufacturing and somebody tell me," Oh, David, you need to go out and get cattle." I said, what the heck is cattle, something to do with a cat?" So that's how I started in 2005 and it just grew, so I took company public in 2016 and then finally exited in 2018 to a Korean company in South Korea for Cosmetic Korea. Then I wanted just focus on Farmacy, because we launched Farmacy, as you know, in 2015, with Sephora together as a great partnership. I just wanted to brand. I didn't want do manufacturing anymore because it was a lot of work. Again, I ran into the same problem running Farmacy and after selling my manufacturing business, so all over again in 2020, I launched the iLABS about a little over two years ago, mainly focusing on research and development and R& D and innovation as well as supporting beauty brands, so that's my background before Farmacy.

Conor Begley: Yeah, that makes sense. It's interesting, I remember when we got a tour of your lab you were talking about some of the processes you were doing, and some of the things that you had integrated that normally you would bring to somebody else, but you had talked about turnaround time in terms of being able to go and test it and get the results back versus having to wait two weeks is a big deal, it speeds things up. I'm actually surprised that you haven't thought about going full vertical integration and doing manufacturing brand and going back to retail. Have you ever thought about doing that again, or is retail too hard?

David Chung: Yeah, retail's hard. When I was doing Cosmetic World, actually, at one point I owned retail brand 3LAB and Englewood Lab at the same time and running three vertically integrated business. It was a great experience. Absolutely, no doubt. After doing three different types of business and my passion was branding. I realized that I'm good at building a brand from zero to, I don't know,$ 50 million or$100 million. I realized I had the talent for that and I enjoyed it the most, to be honest. Manufacturing is a lot of work. I love challenges. I like to get things done, but at the end, I think I want to do more branding and help other people build brands. I love to do that. I think that's my passion today, but I don't really think I want to go back to the retail anytime soon.

Conor Begley: Yeah. Just knowing you I'm surprised that that hasn't happened yet. On the topic of creating brands, you are launching some new brands that we will find out over time about. We had talked about doing that, helping you out, working with you on it a little bit. When we met with you, it was my co- founder and I, John. When we met one of the things that you said that really stood out was that whenever you would talk to me, I would bring John into the picture and I would want him to be involved, because we are business partners and anytime I'm spending not on the business, I think, should be evenly split, and you thought that was really important. Talk to me about the last 30 years. Obviously you've had a lot of long- term relationships, whether it's in business or personal, what is it that caused you to latch on to that as an important concept, this long- term relationship and equal equity? Where have you seen that benefit you over time?

David Chung: Well, I think the relationship in any capacity is so critical in life and business, especially business and people ask me," David, how did you became successful in a lot of ways?" I tell them all along the way, I was so blessed and that great people and I was surrounded by great people who really put me on the map. Of course, I worked hard. I did all the right things, but at the end of the day it was the relationship and people that really helped me grow. I think when I see you and John, it's too like Batman and Robin team where you guys really build that relationship and that's how you guys are growing. I think same way for me, I did not have a partner. I was by myself sometimes a little bit longer, but it was people. Even in Englewood Lab, the people introduced me to other people, build the relationship and the other ones gave me a purchase of millions of dollars and you really have to know, and branding too. For Farmacy, having a team and creating a team who's very passionate and dedicated and having the relationship with this team really made the brand successful. I did some, but these are the people who really made the company successful.

Conor Begley: Yeah. The thing I always think about is obviously as you get bigger, the decisions you make as the leader of a company become more important, but you also become a smaller and smaller percentage of the company. When you have two people, you're 50% of the company. When you have 10 people, you're 10%. When you have 100, you're 1%. Your individual contributions, you're not talking to the customers every day. You're not developing all the products. You're not doing all the branding, and so ultimately your ability to inspire, attract, work with, develop relationships with people ends up being really important, possibly the most important part, at least in my opinion. Then also, I think that people can be really short term in the way that they think about things. It's like how much stronger is a relationship that I have with my wife or with my business partner or whoever when we've known each other and we've worked together for 10 years? We just know each other so well, strengths, weaknesses, good, bad. It's a superpower when you can do it.

David Chung: Your employees is they spend more time with me than sometimes with their wife or their husband, because they're here all the time. I guess most important is, how do you really respect them and make them feel part of the family and part of the success and at end, and how to give back to those people? I think that's the key, and I think I look back for all the business that I have done and why one of the main reasons that it was successful, at least the reputation, it's all about reputation. I give lectures to my team here and with the town halls, I say three important things in my company, it's not revenue, it's not profit. It's about reputation, reputation, and reputation. That's all I'm looking for, for my people in every capacity. People walking from the lobby to all the way to when they leave, so just the reputation of how we do things in this company. I tell them," Once you do that, trust me, business will be there and then they will come, so don't worry about the money. Don't worry about the revenue. It will just come naturally once you have that," and that's my philosophy. That's always been my approach to life, I guess.

Conor Begley: Yeah. I think about that all the time in terms of, for me, it's like, if you do things the right way, if you try to really provide value to people and you try to really do your best work and you try to represent yourself in the right way et cetera, in the long run that wins very meaningfully. I remember we very early on at Tribe, we had a brand who now is a top five, top 10 skin care brand that we track. At the time they were very small. It was a team of three people. They signed up for our services and something happened, I don't know, miscommunication, something. They got a month or two and like," We need to cancel our contract and it's a contract," and whatever. I told my team, I was like," You know what? It's fine. If they're unhappy, I don't want them to feel like they have to pay. It's not worth it, and that relationship will be worth a lot more to us over time, especially if they feel like we're going out of our way to do right by them." It's now one of our larger clients and one of the best performing brands in the industry. It took them a year or two, but they eventually came back and started working with us again, and that time, it went really well. They've been really happy with us since then, so taking the long view on this stuff is super important, especially, I like your focus on reputation specifically. Let's talk about Farmacy a little bit. Obviously, from a purely financial perspective, from at least what I understand the biggest success you've had so far, what was it about that brand in particular that you think caused it to do so well in such a short period of time? What were the core pieces of that?

David Chung: I think there's many ingredients to that success in a short period. One of them is when I was I running Englewood Lab, we really designed amazing formulations of the product, such as green cream. All the formulas in the product was created in- house with my chemists, everyone. So we did create amazing products and we didn't cut corners in any matters, just used the best ingredients, best world materials, make sure you has efficacy, and that was one of them. I think the other also was having a great retail partner like Sephora.

Conor Begley: Mm-hmm(affirmative).

David Chung: We really created together teamwork. We walked into Sephora without any products. It was a piece of paper and literally without any brand name. It as just a concept and idea, and we worked together and in the partnership with this work, and that's another ingredient that was an important ingredient for the Farmacy success. At the end, the team that I put together at the time was just amazing. I've always been thankful for those people. It's a lot of work and their talents inaudible and passion. I think those three parts really made branding and timing on clean beauty. We always believed that's the future. Sustainability at the time, the clean beauty was not as how we talk about today. That was approached from table type concept and was always about ingredient and raw material story, an efficacy story from farm growing. So in the beginning, it was inaudible then that was happening and different things.

Conor Begley: Yeah. In terms of signal on clean beauty specifically, because obviously that was a big part of it is that something that you get to see on your manufacturing side? You'll be like," Oh, wow. Everybody's starting to talk or buy this product." So you get insight into what categories might be moving where, is that something that came through Englewood Lab and when you first observed it or was it just something that you thought you were betting on would be important?

David Chung: I think it was a multi thing. We deal with a lot of ingredient companies, we call material vendors and there's hundreds and thousands of raw materials vendors out there and they're constantly visit visiting us as their customer, and introducing new technologies, a new ingredient that no one has ever seen before. The more we talk to these people, we see where the directions are in green stories going. Then obviously talking to the merchants in the retail, like Sephora, talking to end user and they see what's selling in the store. At the time, we all knew just from being in the industry and being so connected, whether it's a raw material supplier to contract manufacturing to branding, we saw that the future is the clean beauty, sustainability. How do you create a packaging that's biodegradable, so good for the environment? We knew that's going to be the next 20, 30 years and that's not going to go away. It's going to continue to be that way, and we just got lucky and started early. I think more and more, I still believe that's the direction now.

Conor Begley: Yeah. It seems to have become the standard and in a lot of ways, frankly, it's something as simple as the language, just using the word" clean." It's like," Well, what is everything else, not clean? That can't be good." I don't want to put like, not clean stuff on that. That feels bad.

David Chung: Yeah. I know. People talk about natural then, what's natural?

Conor Begley: Well, let's talk about iLABS a little bit. Obviously, you came back, started iLABS because couldn't get the manufacturing done that you wanted to get done for Farmacy. What is different about iLABS than say, Englewood Lab? What's different about your approach? Talk to me about that, because I know you're bringing in independent chemists and helping them to create their own brands. Talk to me about that a little bit.

David Chung: Yeah. After launching my own brands, I realized that success of brand one of the key reading is to have an amazing product, really, really good product. So as a contract manufacturer now, I really want to focus on R& D innovation that's here. When I create a company logo, I put I in the front and I stands for innovation.

Conor Begley: Mm- hmm( affirmative).

David Chung: So our legal entity is Innovation Lab, Inc. When people ask, what is iLABS, and we say we're an R&D company creating innovation in skin care and hair care, but we have people batching and filling and manufacturing, but the core of our business is innovation. I took that approach because I realized that was one of the things that brand needs to become successful. I create an iLABS in South Korea, Seoul, where we have a chemist and the people knew materials, new stories, and they formulate in their own cultural way, and thinking something outside the box. We just opened in Japan. It was delayed due to COVID but I left Japan now and opened up our R&D center in Japan as well. inaudible in Japan? The material is very high, what kind of packaging, what kind of formulation? So at the end, that was the core of iLABS. Then second thing that I wanted put something iLABS that I was not able to do in iLABS was I remember when I was Englewood Lab, we used to get heavy emails from literally all over the world, and some countries that I never heard before. The question that they have was," Oh, I'm an influencer,"" I'm a movie star," or," I want to start my own brand. What is your MOP? How do I go about doing it?" We really disregard all those emails because we did not set up to cater to 1, 000 piece, 500 piece, because a minimum order quantity for Englewood Lab was 10, 000 piece for these. We usually brush them away by saying" We have to have 100, 000," so they don't come back to ask the same question again. Then I realized, this is the future. There's so much demand for these people, these entrepreneurs around the world, whether they're China, KARs, whoever it is, wants to start a brand wherever they go. So I said," You got the supply and demand rule, and where's the supply? There is a demand here."

Conor Begley: Yeah.

David Chung: Then I realized that iLABS should be that company and really support these brands, and they're able to buy small quantities as small as 100 piece and it would just start the engine going, just turn it on and just start something. That was the concept, and because we deal with 150 brands today, big brands, multi- billion dollar company as well, but we try to focus on this in the beauty brands and startups. So I think that's a lot of fun doing that.

Conor Begley: Yeah. Does that end up being a sizable chunk of revenue, or is it more about some of them blow up and then you started working with them early? How does that work? Is it more the contribution they make to the business, or is it more like what they represent, what they could become if they do well?

David Chung: I think for us dealing with smaller brands is obviously much more difficult than dealing with let's say, Estee Lauder or L'Oreal of the world because they have no idea how things work.

Conor Begley: Mm-hmm(affirmative).

David Chung: We have to pull their hand for very small business,$ 10,000 order you have to work as if somebody's giving us$ 10 million orders.

Conor Begley: Yep.

David Chung: But what's the return? Obviously, we would've probably had more higher gross margin, which is a smaller run, but more importantly is that there's an opportunity that no one is doing this. At some point, it could scale up and become critical mass and then you are able to generate good profit margin and continue. Some of them, like you said, you talk to Anastasia, she studied 48 pieces and 100 pieces when she's beginning and look the quantity that she's ordering now, and you could grow together. Literally, you could grow with a small brand and geo and make you successful. We are looking for something like that as well, but I think there is a niche that no one is really doing it, so I think there's an opportunity. That's always my philosophy cause in the business is there's something that knowing there's a demand, and no one is really doing it, or doing it the right way-

Conor Begley: Mm- hmm(affirmative).

David Chung: ...and then you become successful. I think the same way, how you said build your business too is that there was an opportunity that no ones' really doing what you're doing, and you're one of those first companies that's done the influence tracking. Same thing I think for me, I left is that kind of niche. Even in your lab, the one was really doing the right way of contract manufacturing, they didn't understand what service meant. They didn't understand what quality meant. So I just gave them a service and quality and just inaudible

Conor Begley: That's awesome. Yeah. I think at times when people start companies, they start them because they want to see something exist in the world and they want it to be this way. It's like, honestly, the easiest way to start it is to let the market be your guide. I've been asked by, for whatever reason, several people that were like," Hey, I really want to get into live shopping," and there's all these new companies that are doing live shopping, which is people online selling actively. The theory has always been," Well, it's really big in China, so it will get big here. The U. S. is just behind. It'll get there, it'll get there, it'll get there." I go onto these apps and there's 100 people or 50 people, and you compare that to TikTok or Instagram or these others, and it's like, this is clearly not what people want. For whatever reason, I don't know why, but there is no demand here. Inventing demand is just really tough unless you have something that's really breakthrough, so I'm aligned with that. It sounds so straightforward, but I feel like a lot of entrepreneurs don't get that.

David Chung: I just moved to Palm Beach, Florida and I say," There's so much event for amazing sushi place and there's no basic sushi place here. Somebody needs to open an incredible sushi place here and they're going to become very successful."

Conor Begley: It's crazy. It's like," Wait a minute, everybody I know wants this and there isn't one. Let's do it." One of the projects, I think, you're obviously most excited about, you've said, brand building is really the thing that you enjoy the most, so I know that you've got some brands in incubation; some you can talk about some you can't talk about maybe. Where are you seeing pockets of demand and what kind of brands or spaces are you thinking about getting into today?

David Chung: I think there's still a tremendous opportunity of partners. I know there's hundreds, thousands, and tens of thousands brands are born each year, but still that's the future. Right now, I am integrating some brands, and one of the brands that I like to focus, which I would like to launch first half of next year is the hair care brand I've been working on. It's similar in some ways, but it's about more interesting how we could focus on hair care, so I'm working on that. I'm also helping other people start their own small brands, supporting them, mentoring them, and I sometimes make a small investment in those brands as well, so a few things that keeps me busy.

Conor Begley: What is it in hair care? Where is there some gaps there that you think exist?

David Chung: Obviously, there's so much success in hair care, like Olaplex and other brands that's out there, but I think for me, I think we are really focusing on the root of hair and inside the root and the brand is called Well Rooted. We take little bit more scientific approach to the hair care. The brand has not really launched yet, and so it's not much I could talk about it, but I think we want to try to position in that direction, something like, again, not too many people are doing it, so I think there's a demand there.

Conor Begley: Yeah. That makes sense. Yeah. I think there's been a number of big breakouts. Priogio has also done really well. K18 has grown very, very quickly, both because of innovative products, like you said, but also I think they've done really well on social. Okay. Let's do one fun, end of show question. When John and I were meeting up with you, you had talked about starting a restaurant and maybe you've already revealed this, but you were talking about starting a restaurant in New York City where you still spend some time in New York and grow up there. If you had to start a first restaurant, other than maybe the sushi restaurant in Florida, what would be the theme of your restaurant? What's the branding? What's the name? How far have you gotten on that front?

David Chung: Yeah. Somehow, it's stuck in my brain is that someday my dream is to own a restaurant. I don't know why. crosstalk for the last 10 years and now I want to make that happen. I guess I'm one of those personalities that's like perfectionist. When I see something beautiful, I really appreciate such as whether it's furnitures, how things are done, and I'm all about personal experience. I go to different restaurants or anything, for me, those are very, very important. So even iLABS, we just talked about this last week. I told everyone," When people walk into our lobby in our company, whether they're trying to sell you anything, sell you ingredients, sell you paper powers, whatever, you must treat them with amazing experience of coming into our company. Treat them like if they're the President of the United States." So those experience that come into that's very important role in my life. So going back to the restaurant, my dream is to have this small restaurant, people come and have the incredible experience that it's hard to see, and obviously the food. I'm looking at more of vegetarian, vegan, and conjugate the concept in their way, but I want to open where when they come in, I would have a small locker where they could put their cell phones. When they come in, their name's already on the table. You sit down and we call it eating meditation. You sit down, you enjoy the food, and if you bite the food, you think about how this food was made and how it came about, so me thinking experience that I like to try. It's not like omakase style, but I don't know, it's something that I would enjoy building it, building something-

Conor Begley: Yeah.

David Chung: ...for nothing.

Conor Begley: No, it's fun. I think, and again, the little details end up mattering a lot on those kinds of things. I don't know if you've ever read this book, but it sounds like a very similar philosophy to the way that you've approached things. It's called The Winning Takes Care of Itself, and it's by Bill Walsh. So Bill Walsh was the coach of the 49ers when they went on the crazy run in the'80s and did very, very well. He would have instructions all the way down to the way that they answered the phones, like" How do you answer the phone? This is what you say." Every single person in the entire organization, he wrote out very, very detailed like," This is how this job is done." His theory was," If we just all do our jobs and we just all do what we're supposed to do, the winning will take care of itself." I think it's very similar to what you said about," If we just have a good reputation, create really good products, do really good customer service, the money will take care of itself. That's not the hard part." This is really cool. It just reminds me a lot of that.

David Chung: Yeah. I totally agree with you there, and even the restaurant, you just have this credible experience and trust me, I just feel people want to appreciate that. There are people out there who will appreciate it and business with good service. You might have to wait one year to make a reservation, but because you're my friend, you get the prime, no reservation needed.

Conor Begley: There you go. It's funny, the little names on the table thing, it doesn't actually cost that much money are that much time, but they end up adding up to a lot. Well, I really appreciate you taking out the time today, David. I know I had a really good time and I hope you enjoyed it. I know people are going to learn a lot from it. Unfortunately, they haven't had the benefit of having a bunch of these conversations with you and getting to absorb it over time, but I appreciate you sharing what you've learned and congrats again on everything as always.

David Chung: Sounds good. Thank you, Conor. Thank you for inviting me to your show and I'm looking forward to seeing you soon

Conor Begley: Yes, for sure. I'll see you in New York soon, or maybe in WWD. I'll see you there.

David Chung: Okay.

Conor Begley: Bye, David.

David Chung: Thank you.

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