How Rodan + Fields bought back their skincare company and topped $1 billion in sales

• Skincare brand Rodan + Fields generated more than $1 billion in 2016 revenue.
• The company sells its products through independent contractors who are encouraged to use social media.

Source: Roden + Fields

Katie Rodan and Kathy Fields

For many entrepreneurs, selling their company to a large corporation is the ultimate goal. But 10 years ago, the creators of skincare brand Rodan + Fields decided that wasn't going to be their endgame — and now they're sitting on a business with over $1 billion in sales.

Rodan + Fields, founded by dermatologists Katie Rodan and Kathy Fields, was acquired by Estee Lauder in 2003 for an undisclosed price, and its products were made widely available in department stores.

However, over the next few years the women said they came to believe that "retail was dying," Fields said. So they made the risky decision to buy back Rodan + Fields and make the products available to independent contractors and online sales in 2007.

"We were witnessing this whole decline of retail and the rise of social media," Rodan said in an interview. "During the recession was when entrepreneurs were born. People were hungry for different opportunities."

Rodan + Fields' products are now sold through 200,000 independent consultants using a marketing strategy that encourages salespeople and customers to promote the products through social media. Their most valuable tool is the selfie — before and after — which shows the effectiveness of the products on regular people.

"Everything in Rodan + Fields is run on your smartphone," Fields said. "We don't use the regular marketing and advertising."

The company hit $1 billion in sales in 2016 and has continued to grow. It was the top-selling skincare brand of last year, according to Euromonitor.

'When you look good, you feel good'

Rodan and Fields met at Stanford during their medical residency in 1984 as they were studying to be dermatologists. Someone had advised them to "get a hobby or you'll be doomed to treating acne and warts," Fields said. But skincare was their passion and their hobby.

"There's an incredible link between self-esteem and the quality of people's skin," said Rodan. "When you look good, you feel good."

The two decided to focus on combating acne and skin discolorations, and created their famous preventative acne product Proactive in 1995. That was sold through direct marketing company Guthy-Renker, which joined with Nestle to buy the remaining rights to the product's royalties in 2015. Rodan and Fields were paid a lump sum estimated at $50 million at that time according to Forbes.

The women launched the Rodan + Fields line in 2002, for products like anti-aging regimens, sunscreens and blemish removers. At first they sold those items at Los Angeles boutique Fred Segal. But after finding it hard to gain traction from just one store, they sold to Estee Lauder the following year.

By 2007, the market had changed and the entrepreneurs saw an opportunity. As department stores were on the decline, the internet was presenting new avenues to sell and novel ways to promote.

"We started thinking, 'We're giving 50 percent of the margins to the department store, where the department store is only giving up some shelf space,'" Rodan said. "We should be giving those margins back to the people who use the product, love the product and want to talk about the product with their friends on social media."

Then came the iPhone. Rodan and Fields saw that the popularity of selfies combined with social media made for free and authentic advertising. They encouraged their customers to take before-and-after pictures and even included a picture of a camera on product boxes.

"You can't ask for better marketing," Fields said. More recently, "Instagram is just a rocketship for the product," she said.

It's rare — though not unheard of — for founders to repurchase their business. When its your name on the brand and the brand is struggling, sometimes the creators are the only ones who can revive it.

"Once you buy back your business, you have a difficult but exciting road ahead of you," Fields said. "If you believe in your product, you will see it through to the end."