Honest Co.'s CFO shares lessons learned and his vision ahead

ANNE D'INNOCENZIO
This undated image provided by The Honest Company shows The Honest Company Chief Financial Officer Muhammad Shahzad. Shahzad, a former investment banker who joined the company in 2014, shared his thoughts with The Associated Press about the company’s instant success, learning lessons and his vision for growth. (The Honest Company via AP)

NEW YORK (AP) — The Honest Company, known for its eco-friendly diapers, wipes and cleaning products, is back on the upswing after a series of stumbling blocks.

The digital native company was founded by actress Jessica Alba in 2012. It attained unicorn status — when a privately held startup attains valuation of more than $1 billion — three years later. Its formula? Honest successfully built an online community of young parents looking for safe, affordable products for their children. It initially started out with diapers and wipes along with household cleaning products and then expanded into beauty and other items. But the Playa Vista, California-based company struggled with a series of setbacks over the next two years ranging from a voluntary recall of baby wipes to a class action lawsuit over ingredients used in some products. In response, Honest hired a new CEO, cut back on some product lines, and brought research and development in-house.

Honest, infused with a $200 million investment last year from private equity firm L Catterton, is expanding its presence in stores. And this past summer, it moved beyond North America for the first time, taking its beauty business to Western Europe with an exclusive deal with German retail chain Douglas. This month, Honest Beauty will launch in the United Kingdom with beauty and health chain Boots. Honest declined to reveal annual sales, but half of its total revenue is generated from stores, and 45% comes from diapers.

The Associated Press recently interviewed Honest Co. Chief Financial Officer Muhammad Shahzad, a former investment banker who joined the company in 2014, on stage in Boston at an online industry conference called eTail. During the interview, he shared his thoughts about the company's instant success, lessons learned and his vision for growth. The conversation has been edited for clarity and length.

Q. Why such instant success?

A. Our mission has always been to empower people to live healthy and happy lives. Jessica herself and the founding team had a relentless focus on the consumer and ultimately created a brand that resonated with our community of parents. They tend to be millennial and much focused on clean, better for you products. We always understood and had a pulse on the consumer in a way that perhaps some of the larger (consumer product) companies haven't or couldn't because of not having a direct relationship.... And of course, there is a macro (trend): health and wellness is here to stay.

Q. Your brand isn't just for higher-income shoppers.

A. The idea and vision from Jessica was always to create these clean, safe, effective products and make them accessible to everybody.

Q. You had a series of stumbling blocks. What were the lessons learned?

A. To me, the challenges can't define you. You learn from them and you grow. One of the earlier mistakes we made was not focusing on quality control and R&D. It was too many things, too fast. We've redone 95% of the products over the last two and a half years. We have a lot of momentum.

Q. What are your plans for expanding your presence in physical stores?

A. Domestically, the business keeps growing at Target, Costco, Whole Foods, among many others where we've been for a few years. Amazon has been an amazing ride for us. We just announced an entry into Europe. Our goal is to follow the consumer where she wants to transact.

Q. How do you view competition?

A. I have all the respect for the large companies who have been doing this for decades and decades. You have to also remember the categories we operate in are $50 (billion), $60 billion of addressable market. There's space for big. There's space for medium. There's space for small. A lot of categories needed reinvention. We are humbled to be part of it.

Q. It's been widely reported that a sale to Unilever fell through two years ago. Is there another acquisition on the table?

A. Our hope and aspiration is to build an iconic global brand that is around for decades after most of us (are) around. And if you do that, then good things just happen. So whether it is a public financing event, or some sort of M&A (merger and/or acquisition), we are not focusing on that other than building a powerful brand.

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