Hugo Scott-Gall: Welcome to The Active Share podcast that explores less obvious investing insights in a world that’s always changing. I’m your host, Hugo Scott-Gall. Today, I’m delighted to introduce Marie-Ann Wachtmeister, cofounder and creative director of Courbet, a Parisian fine jewelry company. Marie-Ann started her career as a marketing manager at Procter & Gamble, followed by a spell at McKinsey. Her entrepreneurial adventures are marked by founding a telecom company and even a school. Marie-Ann, it is a pleasure to have you with us. Thank you for coming on the show.

Marie-Ann Wachtmeister: Well, thank you for having me.

Hugo Scott-Gall: You’re our first disruptive entrepreneur in the luxury goods space on the show. So, it’s very exciting. So, thinking about that word entrepreneurial, can we talk a little bit about your career path, how you got here, what made you want to become an entrepreneur? Because as I said in the intro, you had impressive jobs at Procter & Gamble; you worked at McKinsey. Those are great companies to work for. They’re not necessarily a steppingstone for entrepreneurs. So, what made you think, I want to be an entrepreneur?

Marie-Ann Wachtmeister: Well, I think when I was at P&G, that was really not at all on my mind. I started to actually think of it as an attractive option at McKinsey during the year 2000, when you had the IT boom. And I think that was the period of time when startups became really something very talked about. I had no idea how to try to become an entrepreneur. For me, it was something impossible.

And it just happened by itself because I was having my third kid. I was on maternity leave. I had moved to start the McKinsey office in south of Sweden, and that was also where we had settled down. During my maternity leave, McKinsey had actually decided not to open the office in south of Sweden. And so, I was just thrown into the situation where I had to start my own company.

So, I started what I knew, what I could do. That was a consultancy company. I started building a consultancy firm with some ex-McKinseys and some ex-P&Gs and specializing on helping pharmaceutical companies deploy global strategies behind blockbuster drugs. So, that was really my focus for quite some time.

And in parallel to this—it was very much like a coincidence, the different projects. So, first I had this consultancy company, which was really my bread and butter. And then I was drawn into a project which is a telecom company, where I started a telecon company. It was the first Voice Over IP cloud-based in Sweden. We entered the market really like disruptors because at that time, companies would have these very huge physical equipment for their switchboards. They would cost several hundred thousand euros when they had to change their equipment.

And we came with a cloud-based service, which was €9.00 a month in subscription. So, obviously, that was quite successful. So, I migrated over to this and spending my time building this company.

Hugo Scott-Gall: Look, it’s not everyone who sets up a telecom company and then says, “I want to start disrupting the jewelry business.” So, is it that—

Marie-Ann Wachtmeister: No —

Hugo Scott-Gall: —you thought, “I’m quite good at spotting areas, bits of industries that are ripe for disruption, and I kind of quite like that?” Or was it more serendipity that you were in one project, and then someone suggested, or you read something? Or how did you think, you know what? A.) I like being an entrepreneur, and B.) what I want do next is break—

Marie-Ann Wachtmeister: Yeah. Actually, I had one more step before I got into the jewelry business, and it was exactly the same thing. And I think it’s a mixture between the serendipity and the deliberate move. It’s really in the gut feeling, where you can see that there is the innovation that it takes to succeed. And of course, with innovation comes disruption.

The whole story with jewelry was more like passed time. I went there on Sundays, doing my own jewelry in a workshop. My sister told me, “You know, you should try to make a ring where you can change your stone yourself.” And I said, “Okay, that sounds fun.” So, I did it; I invented simple mechanics to change the stone myself. And I was doing the drawings during my meetings for my other jobs. And so, I made it; it worked; I patented it, and the patent got approved.

And that kind of kicked off my idea that I need to do a business around this. So, I started producing this ring, and I developed a whole collection. I started a company, and I developed a collection with a producer in Italy. I signed a licensing deal with the Tata Group for India, and then with the French brand for the rest of the world. And it’s a French brand. And that connected me, actually, to Manuel Mallen, who contacted me after that and asked me if I wanted to start Courbet.

So, it’s a long road that goes in strange ways. But it’s, I think, based a lot of the gut feeling of knowing where I think there are the components to succeed. And the components for me to succeed is: it has to be innovative; it has to be doable; the timing has to be right. And I think for Courbet, the timing was just right. And for the TeleBox company, it was just at the moment when the broadband was expanding across the country, and we could just surf on the expansion of the broadband. Long story.

Hugo Scott-Gall: Yeah, yeah, yeah. So, attraction to jewelry, you set it out. How much was the ethical part a consideration for you? Were you just very product-driven? There’s a gap in the market I can see. I want to create this product, and I think this product can sell well? Or did you think, it’s more than product; actually around it, there are these ethical considerations that are also, I think, perhaps, capturing a sort of shift in social values, shift in social priorities that also, I think, add to the product, that perhaps make it a good time to disrupt what is a pretty competitive industry?

And we’ll get on to exactly what are lab grown diamonds in a minute, but this is not a straightforward industry to break into in terms of product, sourcing, distribution. So, was it just product-driven, or was it product plus ethical considerations as well?

Marie-Ann Wachtmeister: For me, when I was contacted by Manuel, and he was asking if I wanted to start this brand with him, with Courbet, I think I was at a state of mind where I had promised myself that I wouldn’t do anymore startups because it’s such a rollercoaster, and it’s so emotionally draining that even if it ends up—it can end up very successful, it is very difficult. But it was the fact that it was not just another great business idea. It was the whole value part which attracted me.

And I think it’s because for personal reasons, first of all. I mean, I’ve for quite some time been preoccupied with the environmental issues that are kind of depressing, and it’s great to be able to contribute some way.

But when I was in contact with Manuel the first time, that was what I was excited about, the fact that it was meaningful. And of course, the combination of being doable, exciting, high potential, and meaningful, was like, it’s amazing. I think today, when we launched Courbet in 2018, we had no benchmark, no reference around us of other luxury brands that were positioned as sustainable.

We talked with investors. They were asking us, “Could you compare? Could you give us a benchmark? Or do you have any other brands that you aspire to be like?” And you know, in the luxury industry, the closest we could get was, okay, Chopard had talked a little bit about ethical gold. You had Stella McCartney that had made this vegan leather. But that was more like animal cause.

So, what we at the time thought—because we didn’t know at the time much about batteries—we thought, okay, we want to be the Tesla of jewelry because Tesla has been driving change. You already had electrical cars before Tesla came in. But what made, I think, them change the industry is that they came in with the same performance, or even higher performance, than other cars. Super cool design, very innovative control panels and way of controlling an opening of the car doors. They really came in from above, and they drove change.

So, that’s what we said. Okay, we need to do that. We need to come in from the top. We need to be at Place Vendome and be positioned high end and be innovative. Otherwise, we’re not going to contribute to changing consumer behavior or even producers’ behavior.

Hugo Scott-Gall: I’m not sure everyone will know what a lab grown diamond is, exactly what that is, how it works. And then what are the benefits of that? You’ve already mentioned kind of energy. But can you tell us what it is; what are the benefits; how long does it take? Everything you need to know.

Marie-Ann Wachtmeister: Okay. So, a lab grown diamond is a diamond. It’s crystalized carbon atoms. They have crystalized in the same way that the carbon atoms crystalize in earth. You have two ways of doing that. You have the CVD process, which is Chemical Vapor Deposition. And you have the HPHT process, which is High Pressure High Temperature.

So, High Pressure High Temperature, that’s what’s happening inside the earth. Diamonds form inside the earth through High Pressure High Temperature, and it happened billions of years ago, probably very quickly because the temperature is very high, and the pressure is very high. But it takes billions of years for the diamonds to work their way up to the surface and get found.

In the 1950s, General Electrics and a Swedish company both discovered that you can actually replicate that process and do it in a laboratory. The first diamonds that were produced, they weren’t very nice. They were a bit grayish; they were super expensive because of all the trials and errors and all the manpower and any investments.

But with time, technology has developed, and this second way of doing diamonds, the CVD process—which replicates how diamonds are actually created in space. So, if you imagine that you have carbon atoms in space that have this negative pressure from the void and crystalize into diamonds, this is what happens with the CVD process. And this process has actually developed much more than the HPHT throughout the years.

And I think 2011, when I was still in Sweden doing this interchangeable ring, I was looking into diamonds, seeing, like, can I put a diamond into this ring where you can swap your own stone? And of course, I stumbled across what they call the synthetic diamonds.

And they couldn’t do the size that was required for the ring, which is three carats. At that time, you couldn’t do three-carat lab grown diamonds. And so, you could only—I think the threshold was one carat. And so, it wasn’t really viable for engagement rings yet. It didn’t really have the quality yet. Now, it does. So now, today, you can have much larger diamonds done, a lot thanks to CVD, but also HPHT.

So, I think you have to think about a lab grown diamond as if you were thinking about an ice cube, where you compare an ice cube to ice that you have taken from the surface of a frozen lake. It’s exactly the same thing. But one has been kind of created through the same conditions, but the conditions have been created by humans. The process of creation is the same, but one has kind of been nudged by the humans, while the other one happened spontaneously. It’s basically atoms, carbon atoms.

I think the difference is really our environmental impact and also the conditions in which they are grown. So, mine diamonds, of course, have to be extracted. So, they are extracted with the help of digging, and the digging is done with dynamites. And the holes that are created to dig up those diamonds are huge. And the whole infrastructure around it, which is mostly dust because you have to shave off a piece of land the equivalent of 75% of Paris.

And there you have your mine. And that mine is going to be exploited for 20 years. And after 20 years, the equivalent of half a bathtub of diamonds will have been extracted. So, of course, for us, seeing okay, you can create those diamonds today, there’s really no reason to dig.

And then comes the question, yes, but you need a lot of energy when you create those diamonds. And that’s true, but you can also choose what source of energy you use. And there’s a lot of possibilities for reducing your carbon footprint with new alternative sources of energy. So, there’s a lot of room for innovation, where I think digging, it’s digging. You can’t really circumvent that issue.

I think today, the big difference between the two diamonds is the impact. You can’t see a difference when you look at them. You can’t see a difference with a 10X loupe. Gemologists cannot see the difference. You can deduct the difference if you take the stone to a gemological institute and have them test it through three to four different machines.

Because there are different types of diamonds, and some of the diamonds from the mines are actually identical in their DNA to the lab grown diamonds. You get to that point of similarity, there’s really no reason, to start from the product point of view, to continue digging.

Hugo Scott-Gall: Yeah, well, it makes a compelling case for a product that maybe was the best example of scarcity of supply drives price and desirability, but now is being disrupted due to a substitute that is, according to what you’re saying, as good. So, therefore, what seemed like constrained supply—and maybe it was artificially constrained supply, but diamond pricing must be reflecting demand versus supply. And if supply was constrained, either deliberately or because it’s just expensive and difficult to discover diamonds, and now you can make them in a laboratory, then that changes the whole supply equation.

So, that, therefore, is just very disruptive. And it’s disruptive, but with strong environmental benefits, as you’ve outlined. So, I guess the obvious question is, well, just how disruptive is this to the traditional diamond industry, and kind of what happens next? Is this an expansion of the addressable market for diamonds? Does this make them more accessible? And does that increase the size of the market, or them becoming more accessible reduces their attraction to some people because they wanted them to be scarce?

Marie-Ann Wachtmeister: I feel that there’s like a Russian doll of questions in this question.

Hugo Scott-Gall: Well, yes, I guess,

Marie-Ann Wachtmeister: It is. But I think what happens now is that we are in the cradle of development of lab grown diamonds. We are at the stage when lab grown diamonds are trying—or have successfully completely replicated what’s happening in earth. And you can see from it’s sold as a diamond, and it’s still mostly sold by goldsmiths and by jewelers who are producing what the consumer is asking them.

So, what you have is that traditionally, if you go to a jeweler, what you buy is the gold, it’s the diamond, and it’s the craftsmanship, and then the margin for a jeweler. If you go to a brand, you will buy the same things, plus the brand image and innovation because the brand invests in innovation. So, you add two new components to your value proposition.

And that kind of adds a new dimension into this whole development. It’s not just about lab grown diamonds versus mined diamonds. It’s also branded versus non-branded jewelry. And the reason why that matters is because when you start to look for innovation, it means that you don’t necessarily look for lab grown diamonds to be the same. And we can already see brands already talking about moving into lab grown diamonds through a creativity and innovation perspective.

So, it’s never going be an ecological argument, and of course not a pricing argument. But it’s more about things you can do that you can’t do with mined diamonds. And I mean, it’s opened fields of amazing and stunning creations that will cost a fortune. So, you’re kind of out of that dimension of pricing, scarcity, etc. because brand is not necessarily about the raw material, but it’s what you do with it.

Coming back to your question about consumers, I think yes, the lab grown diamonds opens up the markets to a new market. It’s people actually who would never, ever buy a diamond for sustainable reasons. When it comes to affordability, it doesn’t really expand that much, yes.

But you know, mined diamonds, you already had a low end in mined diamonds. You could go to the Leclerc supermarket and find super cheap mined diamond rings. When Lightbox learned—Lightbox, you know, De Beers brand. Six years ago, they positioned themselves in the low end. But they were still more expensive than mined diamonds are at the low end.

I think what happens is that people are trading up. And we can see it very clearly that when consumers are coming to Coubert, and they can see that they can get, like, a three-carat diamond for the price that they would normally buy a 1.5 carat diamond, they are not gonna go, “Oh, I can do some saving here and buy a 1.5 carat and save some money for something else.” They will trade up.

And I think that’s also why you would see the U.S. markets in lab grown diamonds move completely to two to four carats in size. And I think it has to do with the fact that, for engagement rings, there are some standards that are being set. And they have been kind of anchored with consumers that you have to—a guy that wants to propose to his future wife has to kind of put up a certain number of months of salary, which is horrible, but that’s how it has been developing in the U.S. And I think it has come to Europe as well.

So, you won’t kind of say, “Okay, I’m going to spend half a salary, or one and a half salary now because I’m going to buy a lab grown diamond.” No. They’re going to go, “I’m going to get an even bigger stone, and on top of that, it’s going to be sustainable.”

Hugo Scott-Gall: There’s expanding the market. Overall, just expanding the market.

Marie-Ann Wachtmeister: I think it’s expanding towards segments that would normally not buy a diamond because of environmental reasons. I mean, today, the Gen Zs and the Millennials, they are completely taken over the generation that was before. So, they are the biggest consumer today. And the younger Millennials and the Gen Zs, they are quite strongly preoccupied with the environment. And I think many of them would not buy a diamond if they could buy a lab grown diamond.

And it depends, of course, of which geography—we’re talking about. I’m mostly talking about France now because that’s where we are, where I think the youth is very eco conscious.

Hugo Scott-Gall: You believe that people do want sustainable luxury, and diamonds are luxury goods. Of course, they range in price. So, even though humans throughout the ages have signaled, I guess … they’ve found things to signal wealth. They’ve found things to sort of signal taste. That’s perhaps arguably been—some of the primary motivations in purchasing luxury goods, including jewelry. There are other aspects as well. Jewelry’s very portable, for example.

But you think there’s enough of a social attitude change to introduce another sort of vector, which is sustainability, that actually an environmental footprint and ethical consideration, there’s enough there you think to really see—we talked about expanding the market—but a market share shift. In this instance, it’s sort of about lab grown diamonds, but you also use recycled materials like gold as well. Do you think that’s enough of a social attitude shift to see market share change driven by these considerations?

Marie-Ann Wachtmeister: I think that definitely has an impact, the same way that if somebody comes with a fur coat today, you would look at that person going, “Is she completely unaware? Is she lacking education?” It doesn’t matter about how much money you have. It’s about values. I think you see celebrities today showing values. It’s something which is like … it becomes part of the luxury concept. I think that is at the heart of this transformation.

However, it’s going to reach a point when it’s a given. You have several forces at work. One is, of course, the value driven. The other is that you have a short supply chain. — So, more efficiently you are able to transfer the value created to the end consumer in a more efficient way. You have one or two steps from the production to the end users, whereas for mine diamonds, you can have up to 12 intermediaries. That’s inefficient.

You have a lot of intermediaries having their margins squeezed. Those intermediaries are actually many of them shifting over to lab grown diamonds because they can earn more money there. So, that’s helping the acceleration of the change. And I think that efficiency in the value chain makes it possible to acquire these diamonds at a more attractive price without giving up any whatsoever quality. You know, it’s not like you’re going, “Oh yeah, it costs less because—” No, it costs less; there’s no reason. It’s simply because the value chain is more efficient. So, I think that’s very, very strong driver of change.

Then you have the being independent of the more or less oligopoly. You have an oligopoly, and it bothers many brands to have a dependency to that oligopoly. With lab grown diamonds, they break this dependency. And then finally, you have the degree of innovation. So, you have a greater span of innovation. You have today companies that are working on creating diamonds with the CVD technology that enables them to do whatever shape they want. So, basically, you can have like hair made of diamond.

As always, when you see disruption, you have many forces at work converging to kind of create this disruption. And I think what happens is that, when a disruptions comes away, you have an opportunity to enter the market and to change the dynamic of the markets, where typically for the diamond jewelry industry has been extremely, extremely conservative, very difficult to penetrate or to change. There were no major innovations.

I think it’s a very exciting period of time, when everything’s kind of up in the air and possible. You have a lot of new entrants. Consumers are changing their behaviors, and there’s a lot of technological innovation.

However, one should note that the threshold for entering the lab grown diamond production business is high. It’s not easy to become a producer because the equipment is expensive to build. You can buy small units. But if you want to be a real producer that can make the volumes required to actually be an actor, you have to build your own machines without trespassing on any patents. And you have a lot of patents out there.

Hugo Scott-Gall: I guess disruption happens when you have a change in technological capability. And I think sometimes, it also happens when you have a change in demand driven by societal attitudes. So, I think it’s pretty interesting what is potentially already happening and potentially may well happen in this part of the industry.

Do you, when you think about other disruptive areas, that the idea of recycling material will lead to either, I guess, better profitability and/or a clear consumer preference for recycled things? Your business also recycles gold, but other materials as well. You’re seeing that more prominent, whether that is in apparel, whether it’s other areas. There’s a concerted effort to make more prominent recycling materials, that sort of circular economy idea.

Do you think this is something that will just become more and more important, in five years’ time, in ten years’ time, that clearly this is what consumers want, and this will drive consumer preferences, purchasing habit, and therefore market shares?

Marie-Ann Wachtmeister: Yeah, I’ve been thinking a lot about what happens with the perception of luxury, what is luxury. And I think that luxury was quite different before year 2000. The beginning of year 2000 ended the 1990s. It became simple. You just needed to have the right brand on you. Everything became very branded. Your handbag, everything had the logos on it, and you just had to have the right logo on yourself, and then you had luxury on yourself.

And so, today, I think people are a bit tired of that way of showing luxury with things that you attach to yourself or things that you own. But luxury is kind of becoming more of a silent choice, a behavior, of course linked to money as always because that’s one way to make it unreachable and scarce. But it’s a little bit like luxury has developed to become, yes, all those brands and everything. That’s a given. Now, let’s look at what you do with it.

Hugo Scott-Gall: I guess the question then is, thinking about this through an investing lens, whether the incumbents in the industry adapt. So, when it comes to diamonds, do they just start growing, developing labs to grow diamonds, and just use that as a different source of supply, but still retain their distribution power? And talking about fashion, whether you just see a pivot—which has already been happening— towards more ethically sound source materials? Or whether it’s generally disruptive, and it really does shift market shares?

So, do you think for you in the jewelry business, the incumbents will respond, and therefore the sort of status quo will prevail? Or do you think it’s generally disruptive in a way that it makes it difficult for the incumbents to respond, whether that is broader jewelry, whether that is diamonds? Do you think that the big guys—they just respond? Or in fact have they lost ground because new entrants like yourselves have not only changed the supply side, but you’ve also changed the nature of the product by this emphasis on ethical sourcing?

Marie-Ann Wachtmeister: The incumbents in this case have such powerful brand names, I don’t think that they are in any way in any danger. I think they will take a very reactive position, simply because it’s not their positioning and they have nothing to gain from being proactive.

I worked at P&G—that was back in the time—on Pampers. And suddenly, there was this whole awareness around the bleaching process of Pampers. And that was considered to be bad for the environment and bad for the babies’ skin. I was in Sweden at that time, and really it was kind of noticed in Sweden, and it started to become an issue.

I was in contact with P&G headquarters. And they said, “There’s no way we’re going to change our bleaching process.” And this issue continued to the point where sales were hampered or threatened to decrease. And there, that was the trigger for change for them. They sent a whole delegation up to Sweden. They negotiated a new bleaching process with their key supplier. The whole thing would change to become compatible environmentally.

And I was in this whole process. And I really made a note that there’s no way they’re going to have a proactive position in this change process. And now for the brands in jewelry business, in addition to what P&G had—they had a strong brand name. P&G is kind of not working with their brand name. They work with their products’ names. And we have one of the big brands in our capitol, and they have said that they’re gonna be moving if the market moves. And they are going to be moving through the angle of creativity. What they can do is that they can buy brands. So, they secure their future.

LVMH, as you know—you know LVMH. They have already invested in lab grown diamond production. Take De Beers, for example. They have been protecting their mined diamonds since the beginning of mined diamonds and protecting prices through controlling supply. And now, they are one of the biggest producers of lab grown diamonds, and they are one of the big holders of patents. And so, I think that it’s just that we’re going to see a shift of the game to a new playboard, where it’s gonna be controlled not by stocks or so. It’s gonna be controlled by our patents.

Hugo Scott-Gall: Yeah. I think what happens in your part of the industry is going to have an interesting read across and lessons for other industries where things were scarce, a change in supply, a change in technology that allows that. But I think this shift in values that drives purchasing decisions can be really quite disruptive.

So, it was great to have you on the show talking about an industry we haven’t discussed on the podcast so far. We’ve talked about lots of industries, lots of things. But we have not talked specifically around, really around luxury in jewelry before. So, thank you very much for taking the time to come on.

Marie-Ann Wachtmeister: Well, thank you. It was very nice questions.