How to "Frame the Bum" and More from Lululemon Founder Chip Wilson
The tone of Little Black Stretchy Pants is set before the reader even opens the book, with a picture of a woman's lululemon-clad rear end gracing the front cover.
"Now that I have your attention" Chip Wilson declares on the inside summary.
It gets even weirder from there. As the reader soon learns, this sort of outrageous marketing is vintage Wilson. One early-2000s store opening involved giving away free lululemon gear to the first thirty people who showed up at the store naked. Wilson recalls that the first two were "girls who couldn't have been older than fourteen." Even after the freebies had been claimed, customers continued to show up sans clothes, including a few men who apparently lingered in the store.
"It was a little creepy, but we went with it," Wilson says.
And that's just the start. It's easy to see why lululemon (Wilson doesn't capitalize the "L") wanted nothing to do with the book.
"This book has not been authorized by the official maker of black stretchy pants, lululemon athletica" reads a disclaimer on the inside cover.
A few more politically-incorrect musings from the man who suggested "Anti-Ball-Crusher-Pant" as the name of a men's garment:
On the pant design "Women told me they preferred side seams...because they slimmed the hips. I wanted to move the side seams to the back to frame the bum and make the bum appear smaller."
On child labor "In Asia, if a kid was not 'school material,' he or she learned a trade and contributed to their family. It was work or starve. I liked the working alternative."
On a critical newspaper article "If those prospective short-sellers want to ensure profits, the smart ones will manufacture a false story...There is so much money to be made I wouldn't doubt a backroom payoff to the writer."
On his innate curiosity "I am passionate about solving for testicular compression when on a bicycle...I want to understand how different sized breasts affect performance in different sports..."
On older consumers "...older women preferred looser clothing and were typically larger in size. This meant a 30 to 40 percent increase in fabric with far less profit..."
On mindfulness "I found the only time I had to shut down - to become mindful of nothing more than the present moment - was whenever I was peeing."
The Controversial Founder
A lifelong athlete himself, Wilson makes it clear that he really doesn't respect people who are overweight, drink soda, or smoke (he would later complain to his executives about seeing cans of Diet Coke around the office). The company's first "Educators," as store employees are known in lululemon-speak, were often hired on their fitness and athleticism.
Instead of golf or lunch, Wilson's preferred method of vetting potential partners was to take them on Vancouver's Grouse Grind, a rugged hike up a ski mountain overlooking the city. It's an attitude that gave the brand its initial credibility among hardcore yoga practitioners, but later landed him in hot water.
Similar to other megabrand founders, Wilson is eccentric, direct, and unapologetic. Often prefaced as lululemon's "controversial founder" in the press, Wilson's frequent gaffes mortified the company's top brass. Amid the see-through pants fiasco of 2013, Wilson was finally forced out after remarking in an interview that "frankly some women's bodies just don't actually work" for the company's clothing.
Wilson's Biggest Mistakes
Unlike many entrepreneurial biographies, Little Black Stretchy Pants isn't always a triumphant celebration of achievement. Much of the book's second half consists of a bitter recollection of how Wilson lost control of his company to (in his view) greedy, shortsighted financiers and executives. The discussion of what not to do is a welcome departure from similar works.
Don’t Doubt Your Own Abilities
Many people told Wilson that he didn’t have the expertise to take lululemon from $100 million in sales to $1 billion in sales.
Even though skeptics said the same thing when the company was only doing $15 million in revenue, Wilson decided that he needed outside help. He had a young family, and he doubted his ability to take lululemon global while still carving out time for his wife and children.
In retrospect, Wilson came to believe that he shouldn’t have hired outside managers. His business model was already performing spectacularly without their help.
Bringing in financiers and professional managers precipitated years of underperformance, as well as a culture clash that ultimately ended with Wilson leaving the company.
Negotiate Hard
By his own admission, Wilson isn’t a great negotiator. He’s a genius at product development and retailing, but weaker on finance.
When it came to soliciting investors, Wilson finally settled on a private equity firm that he believed would be a good cultural fit. He was enamored of the idea of selling them a stake in lululemon and finally securing his family’s financial future.
At the very last minute, though, the firm came in with a valuation of $200 million for lululemon. The figure was below their initial offer of $225 million, and well below other bidders’ offers of up to $500 million. Wilson wishes now that he would’ve walked out of the meeting.
Under pressure, though, he accepted the deal.
Wilson advises entrepreneurs to enter negotiations with neutral allies who have no stake in the outcome. When soliciting investors, keep multiple firms in play until the very end. Don’t fall in love with the idea of finding one great partner.
In lululemon’s case, investors dragged their feet on conducting due diligence on the company. During that time, lululemon’s sales surged, but Wilson didn’t factor that development into the price. Wilson recommends raising the bid if a company’s profits increase during the negotiation phase.
Beware of Motivations
Wilson confesses that he was naïve about the motivations of outsiders.
lululemon’s private equity partners were mainly concerned with taking the company public as quickly as possible so they could cash out and profit. Meanwhile, outside managers hired to “professionalize” the company didn’t see lululemon as a permanent home, and they didn’t try to understand the culture.
The incentive structure of a public company often results in short-term decision-making to placate Wall Street. Wilson had enlisted his private equity partners to find top executives for lululemon, but those hires were mainly concerned with boosting the stock price so everyone could cash out with a big bonus.
To accomplish this, lululemon expanded too quickly. The new stores didn’t live up to expectations, but they allowed management to show Wall Street that lululemon’s sales were increasing. That was great for lululemon shareholders seeking a quick buck, but disastrous for the company over the long term.
Don’t Lose Voting Control
Wilson regrets that he didn’t take the time to learn more about corporate governance before going public. Between taking on a private equity partner and going public, Wilson’s share in the company was diluted to the point where owned less than 50%. As the culture clash came to a head, the board of directors aligned itself against Wilson.
Other company founders such as Nike’s Phil Knight and Under Armour’s Kevin Plank have maintained control through a dual-share class ownership structure. Under this arrangement, the founder’s shares carry more voting power. This structure has become more common in recent years, especially for high-growth companies. But Wilson didn’t know about it.
Keep the Culture
From the very beginning, Wilson saw lululemon as a company by athletes, for athletes.
A former competitive swimmer himself, Wilson often hired employees based on athleticism. The early lululemon consisted of a tight-knit team of people who shared Wilson’s laidback, West Coast style of doing business, eschewing bureaucracy and formal attire. The company was mostly decentralized, and Wilson allowed store managers a large degree of freedom.
Later Wilson would observe that the company culture changed when outside managers were brought in. New executives tried to adapt lululemon to their own management style rather than the other way around.
Wilson, who likens soda-drinking to smoking cigarettes, noted with displeasure that Diet Coke began appearing on more and more employee desks after he stepped down as CEO.
As time went on, investors also pressured Wilson to replace several company insiders with whom he shared a close personal relationship. The reasoning was that the relationships would create a “conflict of interest” for a public company. With key positions filled by outsiders, company executives and financiers were able to slowly marginalize Wilson and reduce his influence within lululemon.
Lululemon Today
Wilson concludes his diatribe against lululemon by noting that, as of the book's publication, the stock price had barely moved in six years (although he did express approval of new CEO Colin McDonald, mainly due to his athleticism).
Since 2018, lululemon's stock price has nearly quadrupled. Even Wilson admitted earlier this year that the company had a "long runway."
The worst didn't come to pass for lululemon, but Wilson's overall assessment seems correct: a company needs a visionary leader on top who understands the customer, along with executives ("operators") who know how to execute.
Aside from the occasional odd remark and laundry list of corporate criticism, Wilson's story provides a lot of practical advice for the entrepreneur. The first lululemon pants were high-quality products designed for a specific target market - active, professional young women whom Wilson terms "Super Girls." With a shoestring budget, Wilson describes how me marketed mainly through word-of-mouth and cheeky advertising. In building the company, Wilson's philosophy was to hire great people, then get out of their way.
In many ways Wilson was an entrepreneur ahead of his time, anticipating and capitalizing on trends years before they went mainstream. Although obviously one-sided, the book provides what is likely a fairly accurate picture of how lululemon rose to prominence. With its many positive and negative lessons, it's a business biography that I plan to keep on my bookshelf for a long time to come.