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Michelle Phan: From YouTube Star to $84 Million Startup Founder

Do not underestimate the YouTube makeup-tutorial starlet.

Asa Mathat

Do not underestimate the YouTube makeup-tutorial starlet.

Do not dismiss her “Barbie Transformation Tutorial;” her “Sailor Moon Transformation,” which includes anime contact lenses; nor her alarming “Zombie Barbie.”

Because Michelle Phan — with more than a billion views on YouTube and seven million followers; her own L’Oreal line and lifestyle media network; booming e-commerce beauty startup called Ipsy; and a new book — is teaching more people how to decorate their faces than perhaps anyone else in the world.

The ferocious 27-year-old mogul had a modest start with her family — living on food stamps at one point — and now has a company with an $84 million annual sales run-rate. She has 700,000 subscribers who receive her Glam Bags — little sacks of makeup samples — for $10 a month. The makeup business is famous for its high margins.

Today, Phan took the stage at Code/Mobile in Half Moon Bay, Calif., to talk about transforming YouTube stardom into a real-world empire, a now welltrodden path.

Phan came onstage dancing, in a sleeveless blue top and a white skirt with decorative orcas.

Her interviewer, Re/code’s Dawn Chmielewski, said the conference planners chose electric dance music for Phan’s entrance because it seemed appropriate. Pham, shimmying, agreed (she is an EDM fan, and is starting her own label after an earlier label partnership soured).

Chmielewski asked how it all began.

“The first videos I uploaded on my own personal channel were videos of dogs,” Phan said.

In 2007, Phan was a waitress, and couldn’t even get a job at a beauty counter because she didn’t have sales experience. She was undeterred.

“YouTube was the biggest thing in the college community, and it just made so much sense for me to have a platform,” she said. “Instead of feeling down about it, I opened another door, and that door happened to be a laptop.”

Phan began doing makeup tutorials. And people loved those makeup tutorials. Eyeliner technique turned into far more sophisticated lessons, like how to look like Lady Gaga in “Bad Romance.”

“I showed people how they can transform their face,” she said. “[Lady Gaga] really helped put me on the map.”

Meanwhile, large makeup brands like Lancome were struggling to get hits with good viral makeup videos. In 2008, a Lancome executive Googled around and found a Phan tutorial in which she was cramped up on a plane, showing her fans how to do makeup on the plane. Lancome signed her as a spokesperson.

Michelle Phan, Ipsy founder and author
Michelle Phan, Ipsy founder and author

Phan says her shaky bedroom videos appealed to people more than big productions because they felt more authentic: “People need to understand that what makes YouTube so different is that you go on there because you want to connect with someone.”

She talked about her main business, the Glam Bags — curated, luxury sample bags sent monthly — and the month-long wait list to subscribe.

Phan turned to the audience: “For $10 a month, you can still feel like you’re valued, and you can get something that empowers you to try something new,” she said.

Asked about the economics of YouTube, Phan said, “It’s like any medium — you have the subscription, but that’s not going to make all the money. You have to bring on sponsors, and you have to sell a product.”

And not every viral star has to have seven million followers — there’s a healthy YouTube middle class: “So many of my friends have 200,000 subscribers, and they make around five to six K a month,” she said. “Which is completely cool.”

Chmielewski asked how Phan has noticed desktop and mobile patterns change.

“Last year, 60 percent of traffic came from desktop,” Phan said. “Today, 70 percent comes from mobile.”

And then came what could have been a tense moment — Chmielewski asked about the EDM lawsuit. As Phan described it: She was given permission to use EDM music for her makeup tutorials, which was a nice backdrop for her tutorials and nice publicity for the label.

“Until I started making money,” she said. “And they thought their music was what was making me successful.”

Phan launched her own label with Cutting Edge Music.

She took it as an opportunity to declare herself a defender of “Team Internet,” which seemed to indicate a stance about more progressive copyright laws.

“We’re living in an age where we should be collaborating. Because it’s the Internet now. It’s hard to say who owns what,” she said, looking out into the audience. “I believe in Team Internet, and I’m here to protect my fellow YouTubers. … I’m here to fight and stand my ground.”

It was a rallying cry.

The conversation segued into Phan’s new premium lifestyle network on Endemol Beyond, in which she will find viral tastemakers in various categories and build them into “power brands” — like herself. (How large can her empire grow? Larger!)

“Imagine a Michelle Phan who cooks, or a Michelle Phan videogame player,” she said.

Her role will be the experienced mentor: “It’s very easy to make a viral video, but longevity and consistency, that’s hard.”

Chmielewski thanked her for coming on, and Phan smiled at the audience, her dramatic eyeliner and glossy lipstick showing no sign of wear.

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