“Someone once told me that during a recession, a lot of businesses will form because people are driven to consider their options at this point. I felt like I was at this point in my life too. I had this YouTube channel and I figured I could accumulate some followers which could give me an edge on my resume.” At that time, you couldn't make money on YouTube but I knew that this was a tool. This could be the future of TV — which we see today, everyone's on YouTube.” - Michelle Phan
Michelle Phan is an inspiring female entrepreneur, ultimate creator, and beauty superstar. You may know her as YouTube’s beauty pioneer whose channel has received over 1 billion views, making her one of the most watched talents in the digital space.
She has built multiple multi-million dollar businesses including Ipsy, a makeup subscription company, EM Cosmetics, and most recently, Thematic, a marketplace that enables creators to find and use copyright-free songs from real artists in their videos. She has been featured on Forbes' 30 Under 30, Inc’s 30 Under 30 Coolest Entrepreneurs, and Fast Company’s Most Creative People in Business.
In this conversation with Neha Gandhi, Michelle shares her journey into entrepreneurship, her business intuition, rebranding herself, surviving burnout, the importance of re-charging and gaining clarity through travel.
This episode was recorded live in front of an audience at the Girlboss Rally in 2019.
This interview has been edited for length and clarity.
When you were coming out of college and starting your channel, how much of a vision did you have of what's to come?
This was in the summer of 2008. The economy was really bad and we were in a recession. As a junior at that time, a lot of my senior friends who graduated weren't getting hired and that freaked me out. I was contemplating on figuring out what to do because I had accumulated so much student debt. Someone once told me that during a recession, a lot of businesses will form because people are driven to consider their options at this point. I felt like I was at this point in my life too. I had this YouTube channel and I figured I could accumulate some followers which could give me an edge on my resume.
At that time, you couldn't make money on YouTube but I knew that this was a tool. This could be the future of TV — which we see today, everyone's on YouTube. When I began to build my channel, my videos started to catch on and received lots of viewers, which surprised me because I was just doing it out of passion. I think great opportunities can come when you're not trying to create a product for money but rather trying to bring a solution to a problem. In 2007-2008, there weren't a lot of readily available makeup tutorials — you would either have to go to a beauty counter and buy products, or pay for makeup seminars. I saw this market gap and thought my videos could fill it, and luckily, I made the right decision. I started to make money when YouTube offered AdSense and that was how I was able to invest more time in building my channel.
Did you have some kind of foresight because you were so ahead of the curve with your YouTube channel and your Ipsy subscription boxes?
I always like to put myself in the shoes of the consumer. A good entrepreneur is someone who is good at identifying market gaps. Steve Jobs is a great example. He designed beautiful products for Apple because he had beautiful things; he had Leica cameras and drove a Mercedes SLS. He had really good taste and you want to put yourself in the shoes of the consumer. I did the same with my YouTube channel; I want to watch makeup tutorials so I just made some.
I started Ipsy in 2011 at the height of the trendy business model, flash sales. Remember Hautelook or Gilt.com? They were making money off of FOMO which was popular at that time. I was trying to identify what's going to be the next thing after this and subscription made a lot of sense. If you really like something, whether it's shows and movies like Netflix, or in this case, beauty, you can subscribe to an experience that's personalized for you. We brought it to investors who loved the idea, and they gave us $2.6 million. If you want to be a good entrepreneur, see ahead of the curve. I think it has a lot to do with instinct.
As a YouTuber, how did you fundraise and pitch to a board of investors? How did you make that transition into business practically?
I was so scared at the beginning because I was only 19 or 20-years-old, and I didn't really know anything. I didn't go to business school, I went to art school and wanted to be a concept artist for video games. I was $16,000 in debt and didn't know what to do. Thankfully, YouTube was there and the first thing I paid for when I got my Google check was my entire debt. Immediately after that, I felt so free, but then I was thrown into this world of a business. I'm no longer a student, but I am in a way — a student in this real world.
How did you learn? Were you googling everything or were you talking to experts?
I was learning in boardrooms. Whenever I would hear someone say something, I would just observe, take it in, go home and research. It's the internet, everything is there — you just have to know what to search. In a way, you have to be curious too. I also wanted to know what they were saying because I felt more powerful when I had all this knowledge.
There's so much on the internet. How did you distinguish bad information from good information?
It comes with experience, you have to try it and be open to failing. There is a lot of misinformation in the age of information. It's hard to figure out what's the right thing to do, and I think it boils down to the good decisions I made in life, trusting in my intuition, but also my logic. I don't believe in only trusting in your heart, you also have to be rational about it and find a balance between the two.
So you build an amazing business with Ipsy, you're learning as you go, you're becoming an expert, and you eventually exit. How do you get into your next business?
This is another thing you're going to learn if you’re looking into building a business: you have to think of an exit. It's either going to be a business you're going to keep forever, like Heinz ketchup which we're probably going to eat for another hundred years or McDonald's, a legacy business. Or, you can go public with your company. Third, you can have someone buy out your company in a merger or acquisition. This is really important because when you don't have this on your timeline, you're like a hamster running on a wheel. If you want to continue building the next thing, like Elon Musk with the PayPal mafia who built mega companies that were bought out, take that money to invest in something new. Thankfully for me, I had my exit with Ipsy which gave me time to recharge and rest.
If you guys are casually posting on social media for fun, imagine doing that for a living every day. You have to think at least a month ahead with all the content that you're planning. It’s so much work because you are your own editor, producer, and talent. It gets extremely draining after a few years, and the burnout rate is high now because we are living in this generation of people glued to their phones and hungry for more content. We're seeing the quality go down and the quantities go up. They just want quality information, and so this is a great time to start identifying these market gaps.
Thankfully, because I made the right investments in building a company and having my YouTube channel, I could take a break. A lot of my YouTube colleagues still have to film. Don't get me wrong, I think being a YouTuber was one of the best jobs I've ever had in my life. It was so fun but after doing it for a few years, it's extremely stressful because the appetite and your channel is growing so you feel like you're competing against yourself. It gets dangerous because you’re trying to stay relevant in a space where people's attention span is so short. YouTubers now are also struggling because of the Article 13 copyright laws in Europe where it’s getting stricter and there's a lot of takedowns and demonetization. When you're operating your business, it’s really important to be in tune with what laws are being passed around the world, especially with the internet because the laws will catch up.
What did you do when you had the luxury of taking a break? How do you walk away from your fans?
It took me a few months to make my hiatus video and it was a very personal video. It was hard to imagine creating content for ten years — it’s like touring for ten years straight. I'm going to take a break but I'm not going to say goodbye, I just need to go and travel and find myself.
What did you learn from that time traveling around the world?
Traveling gives you something that money can buy because you could pay for tickets and hotels, but it gives you perspective, and I think that's so important. You see how other people live around the world, sometimes they live with very little, but you see how much happier they are. Gaining all these different perspectives, touching all these different cultures, trying all these new foods, and hearing all these languages, you realize you're part of this beautiful world. It makes you feel more centered. Sometimes we get so lost and caught up in our little lives that just a little bit of perspective can give you that aha moment.
When I was building Ipsy, the subscription company, I didn't get this idea out of nowhere. It was actually something that I came upon during my travels. When I was in Thailand in 2008-2009, I saw a bunch of women crowding this little kiosk at this mall buying small beauty samples from expensive brands like La Mer and Lancome. I was asking them why they are buying these samples and not the full size, and my friend was telling me in Thailand, if you buy any beauty product in any store, you can't return it. In America, we're so lucky because you can use half of the bottle, and come back to the store and get a full refund. I liked the idea that people would pay for samples, but at that time I was poor. I was still in college and I didn't have enough money to run a business. I tucked that idea in the back of my head and I just waited for the right time.
What did you retain from that time away so you didn't get back to a place of burnout?
I think after all that traveling, I gained clarity. From childhood to attending institutionalized schools, all these ideologies are placed on us by our parents, teachers, and then universities. You learn certain things and this is how you see the world. Then, the moment you travel, you realize the world doesn't work according to what I was told — it's so much more complex. It gave me a lot of peace because I realized I don't have to make certain choices that everyone's telling me to. I can think differently, and follow my instinct and intuition.
How much of the decisions you make, specifically, as an investor, are based on gut instinct versus diligence?
It’s a bit of both. Your heart needs to feel right, and logically, it needs to feel right too. I can't even begin to tell you how many business ideas I get from people who tell me they want to create the Twitch of makeup tutorials. That's a cool idea, but it's not going to do well because people would just go on Twitch. There's a lot of really good ideas, but either it’s the wrong timing, or the market size is not big enough for them to raise a lot of money.
What you’ll learn is that you're going to fail a lot. Imagine failure like a compass, if you're going in one direction and you're lost, maybe you shouldn't go in that direction. Failure helps you pivot and move in another direction. In these failures, I noticed the key drivers that made things successful always had an idea that resonated with both my intellect and my emotional side. A few years ago, scientists found similar neuron cells in our heart that are similar to the brain — the two are connected. The brain thinks rationally and the heart feels. I've learned not to make decisions too logically because you need to have empathy. You're working with people who have lives so it's important to have a strong sense of empathy and emotional intelligence.
How intentional was the transition from your YouTube brand to your entrepreneur brand?
It was really important because we live in a label driven society. People will categorize you because they're trying to understand you. It happens a lot to me. In the business world, people would see me first as all these labels: I’m young, I'm a woman, and I’m a YouTuber. Oftentimes, it's good for people to underestimate you; they have no idea what you're going to do and then you just blow their minds. I know some people say, “fake it to you make it”, but no, I want people to underestimate you. That's the golden rule that I've seen.
Was there an intentional PR moment where you needed to start doing a certain kind of press?
In my case, because I intended to raise money for one of my companies, I needed old money to show that I am an entrepreneur, not just a YouTuber. This was when I approached my PR team, and asked them to help get me on a few magazine covers and talk to different business press outlets. That way, it starts building credibility, and it changes the perception of how people see me. I never cared about labels, but when it comes to raising money, that's when you should care because that's how people see you. The moment I started to push harder on changing my narrative to being an entrepreneur, doors and opportunities were opening up. It's all about choosing your battles, you can't always just do it your way.
What are the best and worst ways to relax and recharge from working now in your daily life?
I think the worst way is to think you have to do yoga, meditate, or follow what everyone says you have to do. Everyone is different, people relax differently. It's important to explore all avenues because the whole point of resting and meditation is to get your mind in an alpha state — when you're zen. This is a great time to learn new languages and study because your brain can just absorb things. Whatever gets you in this alpha state is your road to meditation. I'm a fire sign (Aries) and how I get into the meditative mode is to work. I know it sounds crazy, but I have to make something. Recently, I'm learning how to make music and trying out new things to get into this alpha state.
I graduate in a year with a degree in public relations in the beauty industry. I was wondering if you have any advice on what I shouldn't do and how to be overall successful.
I know a lot of people who work in beauty PR. In general, always treat people with respect because the industry is so small. If you're acting out, it starts a ripple effect on your reputation. Be kind to a lot of these beauty creators because they do talk amongst each other. Something I saw that I didn't like was when certain PR people try to be your best friend. They'll get your number and they'll start texting you like they are your best friend, but they’re trying to slip in free deals. That doesn't necessarily mean you can't be friends with them, but you have to know how to draw those boundaries.
I read that you were trying to dabble into blockchain technologies to make a better infrastructure for future creators. What does that look like for the future creators in this room?
I have a crypto fund where I invest in different cryptocurrencies and also in businesses that are built on blockchain like smart contracts. We see now again that laws are catching up to internet businesses who are going to be liable for anything copyrighted. In a way, it's the antithesis of what the internet is because the internet is supposed to be this open world for people to share whatever ideas that they have. We're seeing now that people want decentralization. They want decentralization in money with Bitcoin, and they want decentralization in the work environment by becoming their own business owners. It makes a lot of sense that we're moving towards this hyper niche, decentralized world, where we want to be able to have the freedom and access to trade and exchange with each other, whether it's content, products, money, or services.
I was able to learn all this because I took the time to travel. I would go to the Netherlands and South Korea and see everyone’s into crypto. I thought I should start learning more and get more serious about this as we're talking about market gaps. Blockchain technology is not going to get mass adoption for another few years, but it's good to start at least building the foundation which is something that I'm investing in. I’m also investing in the people who are looking into building it.
When you get new ideas, how do you manage yourself to stay on track without getting swayed by other shiny ideas?
You guys might laugh but astrology helped me. Plato and Aristotle studied astrology. Alexander the Great consulted astrologers before he took over a country. It is not just hocus pocus, there's math to this and it's down to the energy waves. Astrology helped me so much because I had no idea why I was so crazy — my meditative zone is when I need to work. When I learned about my stars, it made so much sense because I have so many fire signs. I have five fire signs and I have Virgo which is why I'm so meticulous and crazy. Now that I'm aware of this, I can check myself and find that balance. If you find in your sign that you tend to go after the shiny objects, because maybe you have a lot of air signs and you get excited easily, start building towards awareness. Get alerts on your phone or have a good calendar with timelines. You have to put extra work into that, then you'll notice that you're going to grow and evolve.
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