Episode 32: Annette Rodriguez, Managing Director at Warburg Pincus

Meet Annette Rodriguez. Managing Director at Warburg Pincus. Listen as she walks us through how private equity impacts the beauty industry, and how she preserves balance between her career and personal life. (Note from Jodi: I wish I knew, 20 years ago, that Annette’s job existed. If I had I wouldn’t have skipped out on my Intro to Economics class in college!)

Dan Hodgdon
AnnouncerWelcome to Where Brains Meet Beauty, hosted by Jodi Katz, founder and creative director of Base Beauty Creative Agency.
Jodi KatzOh my God, I am so excited, everybody, to be joined today by Annette Rodriguez. She is the managing director at Warberg Pinkess. Annette, welcome to Where Brains Meet Beauty.
Annette RodriguezThanks, Jodi. Thank you for having me.
Jodi KatzI'm so excited about this because I think you're our first private equity guest, and we have so many different types of people that's in to our show. We have a lot of people who are in the later stages of their career, and they're just curious about what their peers are talking about and thinking about.

We also have so many listeners who are earlier in their career, or looking to make really drastic career changes in heading their way towards beauty. I think this is going to be an incredible treat and learning experience for them.
What I'd love to start with first is can you help our listeners understand what private equity means, and how it impacts the beauty industry?
Annette RodriguezSure. Private equity is just a fancy term for folks like myself here at Warberg Pinkess, providing companies with capital to either grow their businesses, or to buy them out completely. Sometimes you'll hear the term growth equity, and that's when a private equity firm will come in and buy a stake in the company. Sometimes it's a third of the company, or half of the company, and they're really providing the founder, oftentimes, some of liquidity as well as some capital to grow the business ... put capital into new product development, marketing, or growing distribution.

The other term that you'll often here in private equity is what's called a buyout. That's when a private equity firm will come in and typically buy control of an entity, and put more capital to work as well into the business.
Jodi KatzWhy beauty? Why does beauty need PE money?
Annette RodriguezI think private equity is a source of capital for all sectors. Here at Warberg we invest across every industry. I lead our North America consumer and retail investing, and within that, we identify beauty in particular as a sector that's attractive within consumer, it's attractive because it's growing rapidly, there is a lot of disruption from indie brands, and there is really an opportunity because the beauty business models are very high margin and very heavy cash flow for investors like myself ... private equity investors, to generate a good return.

Why do beauty companies need private equity? I don't think any company needs private equity, but private equity can oftentimes help founders solve some strategic challenges that they may be having with their business. Oftentimes, founders in beauty in particular will start their companies because they really like the product, and they really like the consumer and they like developing new solutions and innovation.
Over time, what happens as you build any business is you find yourself dealing with HR, payroll, IT, finance, and supply chains and some of the areas that are maybe less exciting. You also will sometimes find yourselves dealing with the challenge of how do I grow my business? What's the right distribution channel for me to go after? Which retailer should I open or not open? How do I take my business internationally?
These are all questions and challenges that private equity can help founders and CEOs answer and deal with as they're building their businesses, because we've done it multiple times before and have seen a lot of these challenges. We have a lot of resources in-house, we have a lot of people who can help ... particularly as you're building these businesses. That's where private equity can be helpful, but I think, Jodi, [inaudible 00:04:37] need would be a little presumptuous of folks in my seat.
Jodi KatzRight. Certainly when I talk to founders, and we work with so many founders at Base Beauty, there's a want but then there's a need. There's plenty often like a need ... like we need to move from where we are to forward, and really the difference of some of our clients being able to do it is just cash, money, capital. It's not for lack of ideas. There's billions of amazing ideas out there, but some people just either they know how to find capital, or they don't. If they don't, then it holds them back. At least that's from our point of view.
Annette RodriguezYeah, sorry. I think private equity can be more than just cash and capital. The truth is, there is a lot of cash out there, and there's a lot of capital out there, and a lot of different flavors of private equity. I think it's about finding the right partner who can help you grow your business and take your business to the next level. That's where private equity can really make a difference.
Jodi KatzRight. It's smart money, it's not just money. It's so fascinating to me, your side of the industry, because until I started my business, I knew nothing about anything. I never followed the money, right? I was in the marketing department, I was in the creative department, brands. I never thought about it. I never thought about [inaudible 00:05:58] I am working at, have the capital to keep growing and open more stores and enter more markets. Now that I know about it, I feel like in another life if I could use a spreadsheet and think about math in different ways, I would love to have your job.

I guess what I'm super curious about is how did you even find this part of the business? How did you even know it existed, and how did you enter it?
Annette RodriguezThat's a great question, because I kind of, to be honest, stumbled upon it and got lucky. Not to start way back the beginning, but briefly, I grew up in Miami, and went to the University of Pennsylvania for undergrad. When I got there, I was in the Wharton School. I really went there because I was always interested in math and science, so I thought business is the way to apply that.

When I got there, I ended up realizing that Wharton's got a great finance department, and there were all these kids running around talking about Goldman Sax, and I was like, "What's that? I don't know what that is." I didn't know what investment banking was, let alone private equity. It's all been part of a journey, and that really started when I got to Philly. I spent a couple of summers on Wall Street figuring out what the different types of jobs are, and rules are. Ultimately I did a summer in investment banking, and that led me to discover what private equity was, and what investing was.
What really attracted me to investing was the ability to have real ownership in the decisions that you're making, and so it's not an advisory role. If we make an investment, we live with that. We live with that until the day that we exit, and you live with all of the ups and the downs and the challenges. What I really liked about private equity is the combination of yes, there's a big corporate finance aspect of it up front as well as on the exit when you're making these big decisions about [inaudible 00:08:08] the capital work and once [inaudible 00:08:10] a company, but as well as everything that happens in between.
The strategic challenges with CEOs as they're building their organizations, as they're building out their teams, as they're building out infrastructure as they are ... you know, some of the things that I touched upon earlier. That debate of should I open this retailer or not, and why, and what does that mean for my business, and what does that mean for my brand, what does that mean for the long term growth prospects. There was everything combined that really attracted me to the role.
Jodi KatzIt's so cool. You have the role now of managing director. What does a typical day look like for you at work?
Annette RodriguezThere is no such thing as a typical day, as I'm sure many listeners can relate to across any field. At a high level, what I'm responsible for is ... up front, forcing and finding those investment opportunities. Once we find an opportunity, we do what's called due diligence on the opportunity, so it's basically do a lot of meetings with management, with accountants, with lawyers to make sure we understand the business really well and understand what we're buying, so that's the execution side of the business.

After that, I sit on the boards of the companies that we invest in, and a lot of my time is spent speaking with not only the CEOs of the businesses that we invest in, but very often all of their direct reports. What challenges are they dealing with? What opportunities are they dealing with? There's that piece, and then there's the back-end piece when we're making the decision to either take the company public or sell it. I would get very involved and really drive that part of the decision making. There is a whole spectrum of what we do on any given day. I'm doing one or all of these depending on what's going on.
Jodi KatzDo you find yourself spending most of your day on the phone and talking to people, or are you like jamming into spreadsheets, typing away, figuring things out?
Annette RodriguezNo, fortunately, I'm no longer jamming to spreadsheets like I was 15 years ago when I started in this job. Most of my time is spent meeting people and talking to people on the phone. I travel a lot out to see the companies that we currently own, as well as to meet new potential investment opportunities, or potential entrepreneurs and executives who we could back in the future.

I think nowadays, even with all the technology we have, you can't replace in-person connections and building those relationships with people. At the end of the day, this business is really about building relationships.
Jodi KatzRight. Which makes me wonder ... I would imagine as much as you're interested in maybe like the profitability of a company, you're really equally interested in that person whose running it, right? They need to be the conduit between you and success. Do you feel like you're interviewing not just the spreadsheets of the company, but the people behind it when you're considering an acquisition?
Annette RodriguezYes, that is a huge part of the decision we make is who we're backing. We spend a lot of time meeting with the management teams, and meeting folks even below the leadership team, kind of understand the strength of the broad organization and the strength of the bench. We also do pretty extensive references before we back a CEO, and it is one of the most important decisions that we make.
Jodi KatzWhen you're sitting on the board of a brand, is it very one-sided, like they come to you and they say, "We have a question about retail," or is it like a continued conversation two-way street back and forth about growing the brand?
Annette RodriguezIt is a constant conversation and dialogue. I'd say I'm on the phone with a company that I sit on the board of at least once a week, if not sometimes more often than that. It's a constant dialogue. None of this is ever so black and white that you can just make a decision in one 20 minute conversation. There's also a lot of debate and back and forth that goes on.

There are different challenges that come up across the business. A lot of times brands just reach out and say, "Do you know anyone that can help with this." I certainly do not have all the answers, but it's about helping the businesses connect the dots and getting them to the right resources.
Jodi KatzSo, I guess a question that's on my mind from most people that I talk to on the podcast is why beauty? What about beauty appeals to you? Personally, I don't mean because of the great margins
Annette RodriguezPersonally, it's fun. I'm fortunate that I get to invest in a really fun sector, which is the US consumers that their end ... beauty within that, it's a great category. They obviously have to be the financial aspect of why beauty, and why I like it, and I think I've touched on that in terms of the growth and the margins and the opportunity to build some really big businesses. Beyond that, it's just fun. I like the product ... skincare, makeup, hair care, all of it. I'm sort of a beauty junkie.
Jodi KatzI've always liked beauty because it felt like the more approachable, realistic sister to fashion. Fashion, to me ... like high fashion anyway, it's so much fantasy that it's just like ... not anywhere close to touching earth. It's just so far gone, but beauty is like wow, I can feel something different about myself for $20.00, $5.00, whatever ... $10.00.

I think there's something really incredibly powerful about how intimated beauty brands and beauty products can be with a customer in a way that fashion never felt that way for me. I don't know why I always ended up comparing fashion and beauty together, they are clearly linked. Beauty just felt like everybody can have a part of it. Fashion, I didn't feel that way. Do you ever think about the way fashion and beauty relates to each other?
Annette RodriguezI think there is some more aspects. I think ... I don't know, there's something about beauty that I personally find ... I would agree with you, it is more approachable and it's a lot of fun. I think ... I don't know, sometimes with fashion, there's a lot of pressure around it.
Jodi KatzYeah. Maybe it's like too much hype for my taste buds ... not to say we haven't ever worked in fashion, I certainly have. I just love this idea of attainable luxury, right? Or, even if we think about drug store brands, if a drug store brand is more marketed and really smart about the way they connect with their customer, that customer has so much pride of purchase even if the item is $3.00. I think there's something really beautiful and satisfying about that.

Let's switch gears a little bit. You have this incredible position ... seeing what's happening in the industry, having these really intimate important conversations with people that are growing the business and moving the business forward. We do have so many listeners who are in the early stages of developing their business. In fact, one just emailed us the other day saying that ... she's like labeling her jars. She's been listening to every single episode, which is awesome. We know they're listening.
Let's take a deep dive into what kind of advice you'd have for an entrepreneur starting out, whether they're hair care, color, skin care, even wellness. What would you encourage them to be thinking about at the early stages of their business?
Annette RodriguezI'd say as you're building your business, obviously first and foremost do something that you're passionate about and excited about. That's what will ultimately drive success. If you are excited and passionate about it, then it will come across as authentic. That's a word that we hear a lot about in this day and age, but authenticity is something that I think really matters to the consumer today. That will come across ... that passion and authenticity will be palpable to your consumer.

The other thing is as you're considering where to get the money from, as you put it, Jodi, and what that looks like is. It's really important to pick the right partner. It's sort of like a marriage. You will be living and breathing with that person for a long time, or that company. Even moreso that the specific person within a firm that you're going to be working with, it's really important to have difficult conversations up front and to make sure that it's the type of partner that you want, that your interests are aligned, because that's what's going to really help you build your business.
Jodi KatzWe've both been at events where you're seeing new brands and newer brands. As an industry, I think [inaudible 00:17:44] with newness, I personally don't feel like there's room for everyone to survive. I think that the best will rise to the top, or I guess the most marketable with greatest opportunity will rise to the top. Some other ones will either stay teeny tiny, or they'll just dissolve.

My concern is that brands launch, and they're not really considering truly how important being different is. What would you say to a brand who is just establishing themselves about ways to really diversify and differentiate what they're doing?
Annette RodriguezI think it goes back to being authentic and having that passion in the product, and being innovative. I think nobody ever needs another lipstick, or another highlighter, or another bronzer. It's about ... I think it's about two things. I think it's one, the innovation and how is this product going to do better for me than what I'm already using. I think the other thing is that emotional connection to the consumer and actually making her feel something when she's used a product and touches and feels it.
Jodi KatzThat's so interesting, yes. I think that the space around founder stories has been so incredible lately if you think about emotional connections. People are buying because they love that person. They love their story, and their journey. I think even without a compelling founder you can do that. It's certainly harder, but people are really responding to realness and almost being vulnerable, right? I feel like brands and founders are being more and more vulnerable and open with themselves versus even two years ago.

I've seen so many changes. Even at these big events that we go to, people speaking on the stage or talking about getting divorce and how that led to X, Y, and Z. We never would have heard these stories a few years ago. It's so much more emotional and personal.
Okay, we only have a few minutes left, so the last topic I wanted to cover off with you is something that you and I both know well ... seeking balance in our lives. I know you have a few kids at home, as do I, and I also know that you have to travel for work from time to time.
Tell me what your outlook is to seeking balance in your days and nights.
Annette RodriguezI've learned to not define balances at any point in time, or any day, or even any given week. I think it's unrealistic in the world that we live in to try to think every day I get to do this, because a lot of days you won't. The way I really think about balances is kind of a continuum over a period of time. There will be some weeks where I'm on the west coast for four days and not home, and not seeing the kids, and then there will be weeks where I don't travel at all and I get to see the kids every night.

I think it's about really defining that continuum. I think the other thing I've really tried to do and get better at is try to keep the weekends pretty sacred for family time. It's short, but very intense. I think generally, the rule for me for balance is it's got to be flexible, and it's never going to look the same. As long as over a period of time I feel like I'm doing what I have to do at work, and I'm doing what I have to do at home, then things are okay.
Jodi KatzI love that approach, because number one, it seems more calm and relaxed. I've certainly had stages in my life where I guess I was kind of seeking this perfectionist thing like every day was going to be the day. I'm going to squeeze every single thing into this day, and no joke ... I used to wake up with anxiety. My heart would be racing because I would be trying to shove too many things into too short amount of time.

It took me like literally eight years to figure this out ... being a mom and working, but I love how you picture your painting. It's not about just this one 24 hour period, it's really just about overtime, looking at things in a little bit more of a relaxed way. It takes the edge off of it.
Annette RodriguezYeah, I don't know if my husband would agree with you that I'm relaxed, but that's at least how I try to think about it.
Jodi KatzAnnette, I so appreciate you joining us today. I know our entrepreneur listeners are going to be so thrilled to hearing your point of view. I really appreciate your wisdom. Thanks so much.
Annette RodriguezYeah, no. Thank you for having me. I really appreciate it.
Jodi KatzOur listeners, you can subscribe to our series on iTunes, and for updates about the show, please follow us on Instagram @basebeautycreativeagency.
AnnouncerThanks for listening to Where Brains Meet Beauty with Jodi Katz. Tune in again for more authentic conversations with beauty leaders.

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