EXCLUSIVE: How William Lauder built Estée Lauder Companies into a global beauty giant

We are a very different company today, than we were back when I joined the company 38 years ago. But the principle of who we are and what we are hasn't changed—which is wanting to bring the best to all of our consumers, give her the very highest quality products and the best experience.

Q. When you took over as CEO in July 2004, what stage was the company at then, and what changes did you bring about?

I was in a leadership role at the company in one way or form, for much longer than that.

When I joined the company, over 70 percent of the business was from North America. I felt there was so much more we could accomplish. I spent a few years working with Clinique, then Prescriptives, before focusing on creating Origins. Instead of just being another brand within department stores, we envisioned having our own standalone stores. I began to treat Origins as my personal laboratory, experimenting with new ideas and innovations. In 1994, we bought a new brand called MAC. This was the first acquisition, and turned out very well. In the following year, we bought another brand called Bobbi Brown.

When I joined the company, we were a family of four brands. Then we created Origins and started buying brands, started getting bigger.

By giving people the responsibility to lead, they could demonstrate their capability, and I could multiply myself. That's one of the key principles of leadership—you have to be a teacher, coach and trainer. I believe there's three forms of leadership, leadership from in front—Let me show you how it's done; leadership alongside—Let's do it together and leadership from behind—Show me how good you can be. It's just like what we do as parents. We tell our children what we expect from them, hope that they can do it right, but ultimately we don't do their homework for them.

Q. What are some factors that have led to the success of Estée Lauder over the last 78 years?

We understand who our core customer is—she is someone who is aspirational about beauty. We have been investing in markets outside the United States, since the 1960s. That has really helped.

I strongly believe in patient capital—having the patience to invest in markets, people and brands and letting them develop over a long period of time as opposed to expecting instant results.

Q. What are some of the earliest memories of your grandparents at work?

They were an interesting couple. They were a matched pair, but at the same time, they were very different. My grandfather, always focused on the supply chain and my grandmother on always engaged with customers and out there promoting. At the same time, my grandfather had this wonderful sense of humour, and sometimes, my grandmother would get wound uptight, and he had a way of saying something to her, telling her a joke that made her relax and laugh.

They were concerned about their employees. It is one of the core values I've learnt from them. I tell our teams, as a company we have only two assets, great brands and great people—and we only have great brands because we have great people who take care of them every day.

Q. Any advice they gave you when you took over, that has stayed with you for all these years?

Doing what’s right for the consumers, and understanding that she is the most important.

Q. How do you deal with the pressures that come with carrying on the legacy of a company with such a rich history?

You accept that we're in the consumer products business, which means you are running up the down escalator. If you stop for a moment, you're going backwards. There's always somebody who's going to come up with a new idea.

When my grandmother started this company, she was a nothing [but a] little company, and there were some well-established brands by people who had founded companies before, and they looked at her saying, 'Well, what are you going to be?' And now look at where we are today.

If this is what we could do over a number of decades, aren't there others who we should also recognise? I have a coffee table book in my office, called 'Only the Paranoid Survive' by Andrew Grove, founder and former CEO of Intel. Evolution is just that—only those who are able to sustain and withstand the competition, actually survive. That just doesn't happen, you have to work hard to constantly stay ahead.

I always tell my team, 'Our mission is to stay ahead of our competition, and the only place I want to see the competition is in the rear view mirror, with the headlights getting smaller and us getting further ahead.' My job as a leader is to give them the vision and motivation to work towards to this goal.

Q. How important is it to let your team fail?

I like to believe, 'Creativity comes from every chair, except finance and accounting'. We want to encourage creativity, and for that, you have to give them permission to try and to fail. While it is necessary to celebrate success, it is equally important to celebrate failure, and learn from it.

Q. Can you tell us about some such experiences that you faced?

I've bumped my head many times. For instance, Prescriptives is no longer part of our family. It was doing really well, and was the spiritual parent of the makeup artist brands.

When the makeup artist brands came along, they didn't recognise what their core following was consumer and they tried to be more like the makeup artist brands instead of being more like themselves. When you become more like those who you are trying to imitate, all you do is validate those who are imitating you, rather than making your making yourself distinctive.

In 2009, we decided during the recession that this brand didn't have the same following that it did, and we ultimately closed it down. It was a difficult decision and a tough learning lesson.

You know the definition of insanity—doing the same thing over and over again, and expecting different results. As a leader, you need to be able to recognise when you are going down that route, and course correct.

Q. As a leader, when you have to make tough decisions, how do you find the right balance between numbers and instincts?

Ultimately, your instinct as a leader is going to be most important. The numbers may tell you what to look at, and that may guide you. But in our business, there's science and there's art. We are somewhat schizophrenic. We live with one foot in the fashion world and one foot in the fast moving consumer goods world. So while one says 'let's see what works' the other is 'what do the numbers say'. So you need to have a balance between the two. And to do that, you need to have people who are capable of doing both, which eventually translates into wonderful products that consumers love.

Q. How has the luxury beauty landscape evolved?

When I first entered the industry, in the fragrance category, there were maybe between 40 and 60 new fragrance launches a year. Fast forward to now, there are 300-400 a year. There used to be a handful of brands that were launched every year, now there are new brands being launched every day.

The barriers to entry in our industry are virtually zero. The barriers to scale are still significant. That’s where we come in, and help a number of brands scale with our knowledge and experience. When I took over as CEO, over 70 percent of our business was just from two brands. Now, a whole lot of brands make up for that 70 percent.

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Q. What is the one lesson you learnt the hard way and how has it shaped your leadership?

I’ve always been fascinated by direct-to-consumer, and how we can make a direct connection with the consumer. We invested in a number of ways to do that. We spent a lot of money on replicating the sensory experience—the music, smell, sound—of what a consumer gets in the store, digitally. Ultimately, I learnt that it could not be replicated… It was a very expensive lesson. We learnt from our mistakes to make sure that we don't repeat them.

Q. What legacy do you hope to leave behind at ELC?

When I was growing up, I used to go camping. One of the things I was taught when I was camping is that you always leave the campsite in better shape than when you found it.

In other words, wherever you go, whatever it is, make sure when you leave it better for whoever comes next. I've had the pleasure and privilege of leading this company for a long time with some amazing partners. I couldn't have done what I did if it wasn't for those who came before us. We stand on the shoulders of the giants who came before, and I hope that those who follow will be able to say, you built something great that I can make even better.