In The Company I Keep, Chairman Emeritus and former CEO of The Estée Lauder Companies Leonard A. Lauder shares the business and life lessons he learned as well as the adventures he had while helping transform the mom-and-pop business his mother founded in 1946 in the family kitchen into the beloved brand and ultimately into the iconic global prestige beauty company it is today.
In its infancy in the 1940s and 50s, the company comprised a handful of products, sold under a single brand in just a few prestigious department stores across the United States. Today, The Estée Lauder Companies constitutes one of the world’s leading manufacturers and marketers of prestige skin care, makeup, fragrance and hair care products. It comprises more than 25 brands, whose products are sold in over 150 countries and territories. This growth and success was led by Leonard Lauder, Estée Lauder’s oldest son, who envisioned and effected this expansion during a remarkable 60-year tenure, including leading the company as CEO and Chairman.
Favorite Takeaways: The Company I Keep: My Life in Beauty by Leonard A. Lauder:
This is our story. It’s the story of a family’s transformation, of a company’s creation, of a changing world, and of my own personal journey as I learned to navigate through life, love, and Estée Lauder.
The Estée Lauder
The woman who would become Estée Lauder was born on July 1, 1908, as Josephine Esther Mentzer, the daughter of Rose Schotz Rosenthal, and her second husband, Max Mentzer. Rose had emigrated from Hungary and Max from Slovakia; both ended up in Corona, Queens, where Max ran a hardware store and they lived above the shop.
Never be patronizing, never underestimate any woman’s desire for beauty. – Estée Lauder
Like many little girls, Esty, as her family called her, liked to play with her mother’s skin creams and comb her girlfriends’ hair. But her interest in beauty makeovers went far beyond most little girls’ experiments. Family, friends, and later classmates—anyone who sat down long enough—was subject to one of her “treatments,” to the point that Max expostulated, “Esty, stop fiddling with other people’s faces.”⁴ But, as she wrote, “this is what I liked to do—touch other people’s faces, no matter who they were, touch them and make them pretty.
Increased Demand for Cosmetics
The voracious demand for cosmetics rippled through the entire economy. In 1923, The Nation magazine estimated that the “factory value of cosmetics and perfumes in [the] U.S. was seventy-five million [dollars] an increase of 400 percent in ten years.By 1929, Fortune magazine would announce that the giant mail-order company Sears, Roebuck & Company sold more face powder that year than it sold soap, tooth- paste, and shampoo—combined.
John Schotz – Secret Formula
When she was sixteen, Esty found someone who loved “fiddling with other people’s faces” as much as she did. Her mother’s brother, John Schotz, a chemist, had left Hungary before World War I and settled in New York. Now, in 1924, he started a small business called New Way Laboratories, making beauty products, suppositories, freckle remover, a treatment for dog mange,and something called Hungarian Mustache Wax. He was also an “esthetician,” the term for someone who did facials.
Uncle John was an expert at hands-on demonstrations, and under his tutelage, Esty learned that a quick massage with the cream helped refresh a woman’s face. She became so skilled that she could give a complete facial and makeover—cleansing oil, cream, rouge, powder, lip color, and often eye shadow—in less than five minutes. And she always thanked her subjects with a generous sample of the magic cream.
After a three-year courtship, Josephine Esther Mentzer and Joseph Lauter were married on January 15, 1930, at the Royal Palms Ballroom on 135th Street and Broadway. She wore an off-white satin gown, a delicate cap with a lace veil, and, for the first time in her life, lip- stick—which her father promptly made her scrub off.
A Second Secret Weapon: Tele-woman
She liked to say that in the days before television mass-market advertising, there were three ways to communicate a message quickly to a wide audience. Most people could name two: the telephone and telegraph. My mother instinctively tapped into a third: Tell-A-Woman. Word-of-mouth advertising was inexpensive and effective, and became the heart of her strategy to build the business. “Women were telling women. They were selling my cream before they even got to my salon,” my mother recalled. “Tell-A-Woman launched Estée Lauder Cosmetics.
Filed for Divorce
Convinced that she could do better on her own, my mother filed for divorce in Miami Beach, Florida, on April 11, 1939.
Parents – Remarried
In the winter of 1942, I came down with the mumps. My father stayed over to help take care of me and never left. My parents remarried in December 1942, and in September 1943, we moved from the Esplanade to an apartment across the street. My brother, Ronald, was born in February 1944.
When a person with experience meets a person with money, pretty soon, the person with the experience will have the money and the person with the money will have the experience.
Everything is about training
At Estée Lauder, everything was and still is about training. It’s one of our key differentiators from our competitors. They tend to teach product: “This is a jar of such-and-such and it contains this, that, and the other thing, and you put it on your face and here’s why it’s terrific.” That’s training? No!
Training is all about teaching people that they can achieve anything if they know what to do and how to do it and giving them the confidence to do it well.
Our nonthreatening strategy enabled Estée Lauder to stay below the radar of major competitors. French perfume manufacturers scoffed, saying, “We don’t do bath oils.” Meanwhile, sales of Youth Dew skyrocketed. I learned the importance of choosing my battles—and not to dismiss a competitor just because they seem innocuous.
Doing grunt work
Like most college students, I worked during the summer: first, as a waiter at Camp Arrowhead outside of Rutland, Vermont, and then, as a camp counselor. Being a waiter was a good experience because I believe you have to do grunt work in order to appreciate the big things.
No job was ever too small, no matter whether you were a college graduate or a Ph.D., as some of the guys were. You were expected to know the standards expected of you; you would be responsible for ensuring that you and the men you would be leading would measure up to them.
Running an organization
A ship is like a self-contained company, albeit one under military discipline. But even though orders may not be questioned in the Navy, how you give the orders and how you manage the people who carry them out is crucial to creating a well-run ship or any organization. I picked up other lessons that would serve me well as Estée Lauder grew:
Decisiveness is the order of the day. When you’re in battle, that’s not the time to think things through. The wrong decision is better than no decision. In business, this is equally important. Why? You can- not move a business forward with a batch of decisions unmade. Make the decision—always. If it’s right, bravo. And if it’s wrong, you’ll find out fast—and fix it.
•Two: Give orders in a very clear way, give them to the proper person, and don’t be ambiguous.
If the commanding officer of the ship gives an order to do some- thing, it’s dangerous if you stop to consider and reinterpret what he is saying. In business, if you are the boss, people will often give you an answer that they think you will like. But it may not necessarily be the right answer.
Three: Give praise about accomplishments and hard work as often as you can—as long as it is meaningful. Don’t give empty praise; otherwise you’ll lose credibility.
Four: Praise in public and criticize in private. That was a tough one for me to learn. I’ve always had a tendency to blurt out my opinion if I thought something wasn’t being done right. I’ve had to learn to keep my eyes open but my mouth shut—at least, until I could talk to the person privately.
Five: When you’re told that someone has done some- thing noteworthy, compliment both him and the person who told you, so that two people are grateful for your recognition.
Six: You can delegate authority but you can never delegate accountability. An accountable leader takes responsibility—for their own actions as well as the actions and performance of their teams, down to the least important member. You’re all in the same boat, but if there’s a problem, only you are to blame. The buck stops with you.
And last but most important: If you respect the people who work for you, they will respect you.
Listen to your customers
By the end of 1958, 80 percent of our sales were in Youth Dew fragrance. That moment when Alvin Plant strolled into our office and gave me his thoughts changed the history of our company. And it taught me a valuable lesson: to listen to our customers and the people who worked behind the counter. They were my consumer research. And it was free.
Inspiring others to dream big
When you know your product and your customers, stick to your guns. Never skimp on quality; put your heart and soul into producing the best-quality products to present to your public. Don’t let anyone talk you out of it—and that included my mother.
At the same time, my mother understood the importance of creating a character that was larger than life, so she always dressed well, always made sure to get in front of a camera, always was available for interviews. It’s been said that 80 percent of success is just showing up. My mother was there—100 percent.
Trust your Instincts
As I established my place at Estée Lauder, I learned the most important lesson that would shape my career and my life inside and outside the company: to trust my instincts. Instinct is some- thing that is natural and ingrained; however, instinct has its foundation in experience. If you have enough experience, somewhere along the line, instinct will kick in. If we’re making a decision to buy a company, my experience helps me connect the dots faster and see bellwethers others might not. Then my instinct will take over and make the decision.
If you are torn between what your head or your heart tells you, follow your heart!
That’s what I did with three of the most important decisions I would face over the next few years: to marry Evelyn, to expand Estée Lauder internationally, and to create Clinique.
Launch at the top and stay at the top
Launch at the top and stay at the top. If you launch at the top of the market, you have two ways to go: up or down. If you launch into the heart of the market, there’s always someone who will sell a similar product cheaper than you, and you have no way to go but down in what becomes a race to the bottom. Positioning a brand says, “This is who we are.” I’ve seen too many companies fail by trying to reposition a brand. Know who you are and stick to it. Enhance your brand but don’t reposition it.
Marketing a brand gives you more pricing power. If a product is a musical instrument, a brand is the entire orchestra.
Understanding Market Segmentation
The launch of Clinique was a classic case of leveraging market segmentation. Looking back, this was probably the most important lesson I learned in my entire career: if you understood market segmentation, you understood everything.
If you believe in market segmentation, you know that one marketing campaign cannot cover the globe. There have to be many campaigns, customized to different countries and cultures. To be sure, we used many of the same brand-building techniques for Clinique that we had learned from Estée Lauder, such as generous sampling and Gift-with-Purchase. But targeting the right customers with the right message: that comes down to market segmentation. And that’s what Clinique taught us to do.
Don’t fall into the trap of “How do we compare to others?” as opposed to “This is who we are.”
Find a way to congratulate someone for a job well done. And if you do that often enough, it will give you the permission to point out areas in which they can improve. Once you praise them for the right thing, you’ve earned the right to criticize.
When you criticize, do it verbally. Never put it in writing. If you put criticism in writing, the person will read it again and again and again and get angry and stay angry. Conversely, if you put praise in writing, they will read it again and again and again and feel good about you.
Becoming the Establishment
I’ve always been a big believer in the benefits of being small: we were forced to come up with ingenious and often innovative ways to grow and maneuver around our deep-pocketed rivals; we were more agile and quicker to respond to market trends; and the big guys didn’t notice us until it was too late. Being small didn’t mean thinking small. Instead, it nurtured the entrepreneurial, risk-taking,contrarian spirit that enabled us to succeed. And we had succeeded, again and again until, to my surprise, I realized that we were no longer the new kid on the block. We had become the establishment.
You’re defined by your distribution
You’re defined by your distribution. If you’re in luxury, stay in the luxury segment.
Don’t be bewitched by the volume that can be gleaned by selling in a distribution channel that does not match the equity of your brand. The launch of a brand by a particular store in a particular city or country becomes an endorsement by that store of the brand. If the store doesn’t have concentrated fashion power—if its power is diluted by not being the sole purveyor of the brand—its endorsement is either useless or negative.
Expanding distribution without expanding demand or support for the brand is fatal. In the prestige sector, no brand is strong enough to withstand overdistribution. Distribution is forever.
Don’t hire your best friends anddon’t hire your former classmates. Friendship is friendship, but business is business.
Dealing with Crisis
Laughter is a great equalizer and a strong glue: it’s hard to feel animosity toward people when you’re laughing together. The more tense people are, the more important it is to find a reason to laugh. Crises can be a means of fusing the company together. Laughter helped smooth the path through hard times.
When you go into battle, make sure that you know what you’re doing and where you’re going. Bring your allies and troops together in a mutual under- standing. You can’t expect others to follow you without them under- standing what you’re doing and why.
Family Business Succession
I spoke to consultants and got as much advice as they could give me. Every time there was a sale or a major breakup of a long-term family business in any industry, I studied the reports in depth. Whenever a family company was sold, it seemed the reason was that the next generation had become disengaged from the business and was only interested in the money.
- Two issues stood out: Many family businesses start as a tiny, tiny seed of one person’s ambition. How can you encourage that seed to take root in the next generation, while ensuring that it’s their choice to go into the business?
- And, of course, the elephant in every room is nepotism. How do you deal with accusations of favoritism when hiring family members? How can you help both family members and their coworkers develop the confidence that they were hired due to their competence, not their connections?
Get Ahead of the curve – think in decades
One of my favorite sayings is: “Get ahead of the curve.” Avoid trouble before you see it coming. A lesson I’ve learned through studying why companies fail, whether they’re family-held or not, is that mistakes are made today whose effects may not show up for years. I’ve always felt that you can’t deal with the day after tomorrow. You have to deal with the decades after decades. One of the things that made Estée Lauder so successful in my thinking is that we think in decades, not in the short term.
Patient capital enables you to launch for the long term. Some people think that if you introduce a new product today, you need to either make money immediately or have to pull the plug. After you’ve been around a while, you know that if the product makes money in year one, you can almost guarantee it won’t make money in the future. It’s a flash in the pan. But if you hang in until year three, it will pay off for a long time.
When you know you have something good, a philosophy of patient capital allows you to stick with it even if it takes a while to bear fruit. Aramis ate into our earnings for a couple of years. Clinique’s launch nearly broke the company and we took a bath before it started paying off. But those products eventually paid off more than one- hundredfold. It would have been difficult to sustain the flexibility that nurtured Clinique and Origins if we had shareholders demanding a steady stream of growth and profits.
Playing it safe sabotages boldness
Creating a new brand that really is new is very difficult to do. It’s even more difficult to do from inside an established organization. Outsiders are all about blowing up conventions: “I’ve got to beat the old guys.” People inside the organization, however, hesitate: “Let’s be careful in creating something new, so that we don’t destroy what we have.”
Playing it safe sabotages boldness. We had to continue to be the rule-breaker in order to grow. But as the company grew larger, I feared that we were becoming risk-averse. I worried that we no longer had the damn-the- torpedoes determination to invent a new brand ourselves