Not many companies can convince investors to give them $US100 million before their first birthday.
But Jeff Raider and Andy Katz-Mayfield, the cofounders of shaving startup Harry’s did just that — and then they used the money to buy a 93-year-old German factory.
Raider and Katz-Mayfield became friends more than a decade ago, when the two were interns together during college. Raider then went on to help found glasses company Warby Parker with three of his classmates at UPenn (Today, Raider is still on Warby Parker’s board of directors).
It all began with an annoying trip to the drug store
A frustrating visit to a pharmacy in October 2011 would eventually lead the two to start their own company together.
“I went into the drug store. I’d run out of razor blades, and just had a really frustrating purchase experience,” Katz-Mayfield recalls. “They were locked in a case, which I found to be a little bit absurd. I was buying razor blades — not diamond jewellery. And I wound up spending over $US20 for four razor blades and some shaving cream and I didn’t have a good feeling as a consumer. I knew I was getting taken advantage of and I didn’t really have any choice in the matter.”
He left but returned to the store, frustrated. Katz-Mayfield looked at the branding and design of the razor blades on display, and he didn’t like what he saw. “It didn’t really speak to me as a consumer. It’s really deeply rooted in this kind of futuristic technology. There’s literally a package with a razor blade flying over the moon,” he recalls. “And I understand what they’re trying to convey, but to me it almost felt like i was being treated like a child and being sold children’s toys.”
The next day, Katz-Mayfield called up Raider, who immediately empathized with his friend’s experience. The two started thinking about a company that could take the pain out of buying quality razor blades and shaving cream.
“The question that Andy posed that was really exciting was, can we do this better? Can we create a better experience around incredibly high quality products at really reasonable prices delivered to people in a way that they actually want to buy it, and in doing so, make the whole process of shaving better for guys?” Raider says.
Then reality set in: making good razor blades is actually really hard
The first thing the cofounders learned: great razor blades are important but they’re not easy to make. They started out by trying to shave with every single razor blade out there. “It was a physically and emotionally scarring experience to shave with the lower end products on the market,” Raider told Business Insider.
After trying every razor blade out there, Raider and Katz-Mayfield discovered a 93-year-old German razor blade manufacturer called Feintechnik. The company is “steeped in the tradition of making, literally grinding steel into exceptionally sharp and stable razor blades that then give you a really clean shave,” Raider says. “We got to know the folks there, and we created a product with them that was a custom product for Harry’s. At that point we were like, ‘OK, we have a product that we’re really proud to sell.'”
The two cofounders launched Harry’s in March 2013 and were “blown away by the initial response. It far exceeded our expectations, which were pretty high,” Katz-Mayfield says. “The brand resonated with consumers. People really loved the product.”
Harry’s sells shaving kits and individual razors and bottles of shaving cream. For $US15, you can get a shaving kit complete with a five-blaze razor, three replacement places, and shaving cream. When you consider that a razor and a couple replacement blades from Gillette will run you anywhere from $US10 to $US15, Harry’s looks like a pretty good deal.
Harry’s isn’t the only good deal in the startup razor game. Michael Dubin founded Dollar Shave Club in early 2012 with the promise of sending men one razor per month for a buck. It has raised just over $US70 million from investors. Early Foursquare employee Tristan Walker founded another razor competitor in April 2013, Walker & Co, which actually uses the same German factory as Harry’s to produce its product, Bevel.
How a 10-month-old startup was able to buy a 93-year-old company
In January 2014, 10-month-old Harry’s announced it had raised a $US122.5 million investment round from Tiger Global, Thrive Capital, Highland Capital, and SV Angel. At the same time, Harry’s announced it would be shelling out $US100 million to purchase Feintechnik — both the company and its 93-year-old factory — in the sleepy German town of Eisfeld.
Purchasing Feintechnik was a strategic move — it let Harry’s become a vertically integrated company and to control manufacturing. “It is incredibly difficult to manufacture razor blades. There’s very few places in the world that can do it,” Katz-Mayfield said. “And so it was kind of serendipitous timing where the guys that owned the factory were thinking about potentially selling it, and we had just launched and we were young, but we were fortunate that we had some investors who believed in the vision and understood the importance of controlling manufacturing. They agreed to back us to go buy it.”
Vertical integration is an increasingly common strategy: startups like Harry’s, Bonobos and Warby Parker work with manufacturers to make eyeglasses and clothes, which are then sold online directly to customers. This lets companies have more control over the quality of their products and manufacture items for less. Harry’s sells most of its wares online, but it also sells some in its own branded barbershop in New York City.
But why would a 93-year-old company, which fondly refers to the Harry’s founders as the “American Internet boys,” agree to sell itself to such a young, inexperienced startup?
In order to buy Feintechnik, Harry’s had to earn the respect and trust of the German company. “We always did what we said we would do — like order and pay for a large order (one million razor blades) ahead of our launch,” Raider told Business Insider. “So when we approached them with the idea, they believed we would follow through.”
From start to finish, the deal took about 8 months of negotiation. “We started the process when we were just two months old as a company and ended when we were 11 months old,” Raider says. “It was an exciting time. At the end, we were incredibly excited to have created HF, the combination of Harry’s and Feintechnik, and the only fully vertically integrated grooming brand in the world.”
It’s not easy to acquire a Germany factory into an American startup. Before the acquisition, the Harry’s founders secured its financing — the $US122.5 million round from Tiger Global, Thrive Capital, Highland Capital, and SV Angel — by telling investors about the model they wanted to create.
“We then convinced a German bank that they should believe in our vision and lend to the company,” Raider says. “We were able to do so with the help of the existing management at Feintechnik, and were fortunate to find incredible partners in Germany who were excited about lending to us to help us grow.”
Raider and Katz-Mayfield wanted Feintechnik’s senior management to stay with the company. To that end, the founders and their investors spent a lot of time talking about their global vision. Raider says they learned about the 93-year-old company’s history, and planned to take over the German company in a way that was fair to the factory’s seasoned employees, who stayed on as part of the deal.
At the time Harry’s purchased Feintechnik, the company had 30 people on its team in New York and 420 on its new team in Germany. The average Feintechnik employee has worked at the company for 13 years and knows the ins and outs of making high-quality razor blades by hand.
“We spent a lot of time in Germany speaking with the team there, making them feel like they were part of one company,” Raider told Business Insider. “I remember the first time, right after we bought it, we stood up on some wood crates on the factory floor, and we spoke to the entire production staff. And this factory’s in a very small town in Germany, it felt like half the town was there. We looked at each other and we were like, ‘wow, this is a lot of responsibility.'”
Today, the Harry’s founders say they’re growing both businesses — the Harry’s brand and Feintechnik — rapidly. The founders say Harry’s revenue grew 5x in 2014, and they’re growing faster than they could have anticipated.
Now, Harry’s employs 80 people in its NYC office and 450 in Germany, though the company will continue growing its German operations. In total, the company has raised $US211 million in venture capital funding. “We’re investing a ton right now in growth there, basically doubling the capacity of the factory over the next couple years, which is no small feat,” Katz-Mayfield says. “It’s a large investment — we need to hire over 100 people in the next couple of years there.”