L'Oreal and Estee Lauder: Incubating Innovation

When looking at this process of innovation, is there a material difference between how the incumbents incubate innovation versus the startups and actual incubators today?

I think that remains to be seen, because the incumbents just started their accelerator programs. Many of them are only got formed like two years ago; some of them just last year. So I think the process that they go through with those incubators and how much autonomy they give them remains to be seen. But at least they've taken the first step to identify the fact that they need innovation driven by incubation, not just for the big brands, for example not just designing a new product for a big brand that they already own. They must stay current and on top of trends and either seek out new brands to acquire or start new brands internally.

If you look at the history of a lot of corporations, they didn't start buying brands until Jo Malone. When I picked that acquisition for them that was in the 90s, and the business had already been around for like 40 years. So if you look at Lauder, Clinique, Origins, which was really ahead of its time in terms of ingredients and being natural and plant-based. Prescriptives, which was the first intelligent woman's beauty brand, with a custom blend foundation; that was like back in the 80s. They started all those brands from scratch. So they didn't really start buying anything until the 90s or even signing licensing agreements. The first licensing agreement for Lauder was with Tommy Hilfiger, and I signed that in 1994, so they’re recent to the acquisition game.

So then, historically, they've been pretty good in innovation.

Yes, young, but if you look at a 100-year-old company, somebody who's going to be around for 100 years and all of these companies are going to be around for 100 years, they're huge. If you look at the first 40 years of their lives, they were creating everything internally and not looking outside to buy things. So, the acquisition trail has really picked up in the last 10 or 15 years and really heated up in the last five and valuations have become high.

Do you think that the large incumbents have lost that expertise in incubating internally and have shifted to just acquire the businesses.

Well, I think the bigger you get, the more siloed you become. Then yes, you've got big brand teams that are working on the brands. Your brands are siloed without having an incubator that is looking at trends and maybe looking to create something and there's no team in charge of creating a new brand. In order to create a new brand, you need to put a team in place to create a new brand. So if I look back, all those years ago, when Lauder decided that they needed something that was ecofriendly. They were looking at eco-friendly, plant-based ingredients, more natural, 20 years ago. So they spent some money. They were still privately held companies, but Leonard Lauder had a vision, and he put a team in San Francisco to, basically, build that brand from scratch. That's what it took. He had the vision to do it.