The Color of Money By Nancy Kennedy

These days it's blue, mint green, even yellow. Entrepreneurs with an alternative fashion sense are making millions with outrageous nail-polish colors that have revolutionized the industry

Does she or doesn't she? Maybe she's born with it. Cosmetics as camouflage has long been the rule in the beauty industry. Major cosmetics companies churn out warm browns, ruby reds, and other flattering shades of nail polish and lipstick designed to enhance Mother Nature's gifts. But a few upstart entrepreneurs are turning the industry on its head with the quirky concept of selling outrageous colors for women to slather on their nails and faces.

Dineh Mohajer was a 22-year-old pre-med student in 1995 when she mixed her own nail polish in the bathroom of her West Hollywood, Calif., home to come up with a new color for her toenails --a soft pastel blue. "No one was making the funky shades I wanted," she says.

The shades Mohajer wanted --ranging from demure pastels in yellow and mint green to ultradark blues and browns-- turned out to appeal to countless other women as well. As a result, Hard Candy, Mohajer's Hollywood, Calif.-based company, had more than $10 million in sales in 1996 and anticipates gross revenues of $25 million this year.

Photo of Dineh Mohajer, founder of Hollywood-based Hard Candy

Hard Candy isn't the only upstart to wake up the sleeping beauty industry. Close on its heels has come Urban Decay, a Mountain View, Calif., company with a fast-selling line of inner-city-inspired nail and face colors such as Acid Rain (yellowish), Bruise (green) and Spare Change (silver). Since its launch in early 1996, Urban Decay has also posted more than $10 million in sales with the help of its advertising campaign's in-your-face slogan: Does pink make you want to puke?

To be sure, the nail-polish industry, which took in $267 million in 1996, according to Chicago-based Information Resources Inc., is still dominated by companies like Revlon, Maybelline and Estee Lauder. But Hard Candy's Mohajer says that what her company and companies like it have effected is nothing less than a revolution in how women view cosmetics. These new paints that women are applying to their hands, feet and faces are not intended to beautify less-than-perfect features, but instead are a means of self-expression. Nail polish has become a fashion accessory much like the right sunglasses, earrings or belt. "This is not about makeup. This is about fashion. It's about fun!" says Mohajer.

Candy Land

Mohajer seems an unlikely cosmetics queen. She was raised in Bloomfield Hills, Mich., her father a gynecologist and her mother his office manager. "I was about ready to jump out of my skin," she says. "Michigan is boring. I just had to get out of there."

Along with her boyfriend, Ben Einstein, Mohajer headed first to Boston University, but after just a year decided her true home lay on the West Coast. A pre-med student, Mohajer enrolled at the University of Southern California, and the couple settled into a small house in West Hollywood. The scene there was more to her liking. "I am just obsessed with fashion and music," Mohajer says. "This is where I belong."

Mohajer soon realized her aspirations to be a doctor were wildy misguided --she found pre-med students to be "hard-core nerds." While her classmates hit the books, she began applying her chemistry skills in her bathroom, mixing nail polish from pure pigment and commercially available polishes.

Her first triumph was the pale blue polish she mixed to go with a favorite pair of open-toed platform sandals. As she walked around campus, students kept asking where they could buy the polish. She mentioned the positive reaction to her sister Pooneh, an entertainment lawyer, who zapped her with a jolt of reality. "Are you stupid?" she asked Mohajer. "You could make money with this."

Mohajer gave it a try. In May 1995, she mixed up four colors, all pastels, calling them Sky, Mint, Violet and Sunshine. She took the four bottles to the Fred Segal boutique in Santa Monica, a trendy clothing boutique where Mohajer had worked during the summer. "I didn't even think about what I was doing. I had nothing to lose," Mohajer says.

While her classmates hit the books, [Mohajer] began applying her chemistry skills in her bathroom, mixing nail polish from pure pigment and commercially available polishes.

She was showing her polishes to Sharon Segal, owner of the boutique that now carries her name, when a teenage customer saw the four bottles and demanded to buy them all. On the spot, Segal priced the bottles at $18 apiece and a fashion trend was born.

"I get calls all day long, people asking me 'Can I show you my product?' but I have never seen anything take off like Hard Candy," says Segal. "Dineh got in just as people began to think of nail polish as an accessory. I asked Dineh to bring in a few bottles each day, but pretty soon I told her we needed 200 bottles."

In order to get Hard Candy off the ground, Mohajer borrowed $3,200 from her sister and $50,000 from her parents. Mohajer and Einstein stocked up on supplies and retreated to their home to think up new eye-popping colors and catchy names --everything from the cutesy (Peachy, Bubble Gum, Pussy Cat) to the suggestive (Pimp, Porno, Trailer Trash). They priced the half-ounce bottles at $12 apiece and added a gimmick that appealed to the adolescent set: around the neck of each bottle is a plastic ring to adorn the painted fingers of the fashionable.

The partners brought samples door to door, and soon the polish was flying out of upscale and hip boutiques. This was Hollywood, after all, so it's not surprising that the polish was soon spotted on the hands of Drew Barrymore, Cher, Quentin Tarantino, and Alicia Silverstone, all of whom Mohajer says just happened to buy it. Fashion magazines like Seventeen, Allure and Vogue were soon hyping the trend.

Hard As Nails

Orders were pouring in, but the overnight success was taking its toll. Einstein and Mohajer worked around the clock filling orders, and their home became an office, manufacturing plant and distribution warehouse all in one. However, the space was too small, the odors overwhelming, and their physical condition deteriorating. "One day, I just passed out," Mohajer recalls. "I was dehydrated and exhausted."

Hard Candy was suffering, too. Mohajer, a business novice, wasn't paying much attention to things like accounts receivable or cash flow, and customers weren't paying their bills. Things looked brighter when a local bottler agreed to handle Mohajer's work. But even that soured when the bottler fell behind schedule --working, Mohajer suspects, on his own knockoff brand called Crazy Candy, which was popping up in stores while she waited for her shipments. She called in her lawyers and succeeded in halting her rival's production. "I trust no one completely now. Everyone has his own agenda," Mohajer says. "It's a lesson that comes from getting burned."

Mohajer was savvy enough to know she had a lot more lessons to learn, so she called the local office of Ernst & Young, a management consulting firm that led her to Bill Botts, a former executive at Rockwell International Corp. who now advises start-up companies.

Botts turned the faltering enterprise into a professionally run business. He took the job of chief executive officer, brought in finance, production and marketing directors, and set up manufacturing and distribution facilities. He also apportioned stakes in the company --Mohajer retained a majority equity stake and creative control, while Botts, Einstein and Pooneh Mohajer all got minority stakes. Though Botts has recently left the company, he established a network of sales representatives that moved Hard Candy onto the shelves of some of the nation's biggest department stores, starting with Seattle-based Nordstrom.


A few counters away at that store, and dozens of others, shoppers might find $11 bottles of Shattered or Bruise created by Urban Decay founder Sandy Lerner, another unlikely candidate to launch a cosmetics company. "I was almost 40 before I even started wearing makeup," Lerner says.

Prior to her foray into the fashion world, Lerner scored her entrepreneurial first as the co-founder of Cisco Systems, a computer company that launched in 1984 and quickly became the nation's leader in networking technology. After earning her bachelor's degree in 1975 from California State University, she had decided to pursue numerical analysis and computing in graduate school. "I wanted financial independence, and at $25 an hour in the 1970s, that's what programming offered," Lerner recalls. "My parents were divorced, the job market was zilch and I didn't have the luxury of 'following my bliss,'" she says.

Later, while Lerner and her husband and partner, Leonard Bosack, were managing Stanford University's computer system, they came up with the idea that would launch Cisco Systems and make their fortune --getting a room full of computers to talk to one another. Though they sold their company in 1987, they took a stock package worth $200 million with them.

I wasn't Barbie and I wasn't the earth-mother type. I figure if I can't look like Christie Brinkley why play at her game?

Lerner now had the resources to follow her bliss. She bought a ranch in California and a horse farm in Virginia, developed a computer system that connects pet shelters across the country, and opened a center for the study of English women novelists. Meanwhile, recalling the comments of an aunt who for years had chastised her for not wearing makeup, she turned to cosmetics. "I tried it and I thought, yeah, I do look better with a little foundation and eye shadow," Lerner recalls. "But I wasn't Barbie and I wasn't the earth-mother type, and when I used the colors that were out there, I looked like a cadaver."

She mentioned her dismay with the limited selection of colors to friends and discovered she wasn't the only woman with an aversion to pink. "I figure if I can't look like Christie Brinkley, why play at her game?" she says of her inclination toward non-traditional colors. "I toured cities to see whether I just wasn't shopping in the right places or if the colors I wanted just weren't out there. The only polish I saw that came close was in the tacky, greasy-kid-stuff price range."

But in the fall of 1994, high-brow cosmetics giant Chanel launched a plum-black polish called Vamp that became an overwhelming success, and Lerner decided the time was right for a cosmetics company with a full line of alternative colors.

The name for her fledgling venture came to her while brainstorming with her husband in the summer of 1995. "The colors we had in mind were sophisticated and a bit edgy. It was a way to tie our product into the urban scene," Lerner says. Thus were born colors that look as harsh as they sound, like Shattered (the color of a broken windshield), Oil Slick (a grayish hue) and Gash (a deep maroon). "Our colors aren't really extreme," says Lerner, who along with legions of other women prefer the way they look. "They're beautiful. Not black, but organic greens, rich blues and purples."

Start-up capital of about $500,000 went into hiring an advertising director, launching a marketing campaign and finding formulas and colors that she wanted to use. Unlike Mohajer, who mixed her own polishes, Lerner spent months working with polish manufacturers to develop formulas that didn't use formaldehyde and toluene, ingredients found in many polishes.

Her bet that others shared her aversion to pink has certainly paid off. Lerner hooked up with Nordstrom in March 1996, and still does about 20 to 30 percent of her sales with that one retailer. Today, she counts 325 locations that sell her nail, lip and eye products, temporary tattoos, and body paint.

Staying In Vogue

While Hard Candy and Urban Decay may have been two of the first alternative-cosmetics companies to make it big, they were by no means the first to hit on the idea. Mohajer was just a preschooler and Lerner still in computer class when two sisters from Brooklyn, N.Y., Tish and Snooky Bellomo, used their spare time to make what they call extreme cosmetics using wild, Day-Glo colors. Their company, Manic Panic, was born in 1977 with a few hundred dollars.

"We were the first to come out with blood-red nail polishes and lipsticks," says Snooky. The difference was, when Manic Panic's founders brought their products to trade shows, beauty-industry insiders laughed.

We'll always have customers. There'll always be Dennis Rodmans out there with extreme tastes. We have our own wild, underground clientele.

The pair have since been content to manufacture polishes, hair dyes and glitter body gel on a small scale out of an office in lower Manhattan, looking on as the newcomers fight it out. "We'll always have customers. There'll always be Dennis Rodmans out there with extreme tastes. We have our own wild, underground clientele," says Tish.

Twenty years later, the emergence of Mohajer and Lerner into the mainstream marketplace seems to be the result of a more aggressive approach and a cosmetics industry that has evolved. According to Allan Mottus, editor of The Informationist, a New York City-based cosmetics trade magazine, "The prestige makeup companies were neglecting the color of fashions in department stores." In other words, the dusty shades at the cosmetics counter were not keeping up with the innovative, new colors on the runways. "Then Chanel came out with Vamp," he says, "and suddenly naughty became nice and a niche opened up."

Retailers, too, are now much more willing to take a chance on smaller cosmetics companies, having realized the unique opportunities they can present. "Our buying process is decentralized, so we can catch trends as they happen," says Amy Jones, a spokeswoman for Nordstrom. "Each buyer in a particular region can try a product out if it catches her eye. That's what happened in Hard Candy's case."

Yet Lerner realizes the cosmetics industry would have been nearly impossible to enter without such a distinct niche. "If I were making pink and beige products and had to compete with the Estee Lauders, it would be a dog-eat-dog world. But I don't think anybody's doing what we're doing. We've been knocked off by Revlon, and other companies are doing the quirky nail-color bit, but no one's doing a full line on our high end of the scale."

In fact, she has taken her battle with Revlon to court. When Lerner spotted the company's new line of polishes called Street Wear --with names like Blood, Rusty and Gunmetal in colors she thought mirrored Urban Decay's Gash, Rust and Uz-- she fired off a letter to Revlon President Kathy Dwyer. "Revlon has merely taken a great concept and made a poor imitation," she wrote.

Then Chanel came out with Vamp, and suddenly naughty became nice and a niche opened up.

Urban Decay's lawyers then added a six-point request for changes in Revlon's line, threatening legal action. Revlon replied with a lawsuit saying they haven't breached any trademark laws. In an official statement, Revlon said, "Urban Decay has no exclusive claim to the colors and names that relate to the trends of today's urban landscape." In April, Urban Decay filed a countersuit asking for damages of three times the amount of Street Wear's sales --estimated as $4.5 million from the line's launch in August 1996 to February 1997.

Both Lerner and Mohajer must fend off not only copycats, but attacks by those who object to what they say is the companies' negative imagery. In an August 1996 article, syndicated Boston Globe columnist Ellen Goodman awarded Urban Decay a Fashion Ms.-Statement Award for its "junkie chic" makeup. "Poor Ellen, she doesn't get it," sighs Lerner.

Mohajer's detractors protest not only her colors, but their names. "Psychos call here all the time saying, 'I can't believe you're making this stuff for young girls,'" Mohajer says. "They don't understand that it's fantasy. A 14-year-old is not going to buy Porno and then go out and star in a porno flick. She's not going to wear Pimp and then go out and work for one."

If sales are any indication, such flak has had little impact. Hard Candy is on solid ground with a line that includes 60 nail polishes, 16 lipstick colors and 10 lipliners. It has already moved into T-shirts and other apparel, and is now launching a line of polishes for men called Candy Man.

Photo of Sandy Lerner, co-founder of Cisco Systems and current owner of Urban Decay

Lerner also expects further success with the addition of other products, including mascara, hair dyes and a nail enamel that has the texture of asphalt --which she hopes will be the next big thing. Yet she admits she is already developing another computer venture while working on Urban Decay in the hope of attracting a buyout from an industry leader.

But like all else in fashion, what's here today can be gone tomorrow. "I've seen these companies come and go," says Mottus. "The department stores have been willing to help these guys get going, but their long-term success is going to depend on whether they can establish a solid brand name."

Perhaps what's most likely to fell these companies is the fickle tastes of the young, trendy consumer. A new crop of start-ups are eager to fill any chinks in these companies' armor: Ripe, whose colors and glitters are supposed to be layered; Daisy, whose nail glitters Sharon Segal says are "awesome"; and Tough Sentence, a company whose polishes have scents ranging from chocolate to cloves, roses and even peanut butter.

With these innovators on their heels and the industry giants moving in on their market, Hard Candy and Urban Decay will have to catch the next fashion wave to stay afloat.


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