Selva Book Club: Little Black Stretchy Pants by Chip Wilson
The below is taken from Selva Ventures’ Q3 2022 Quarterly Investor Letter
This section of our letters will take passages from a relevant investment or business book and share learnings and reflections directly related to Selva.
The sixth installment was a study of the most successful brand built in the 21st century, one of the first “DTC” brands, and likely the most famous consumer products company to come out of Canada (a nation near and dear to Selva Ventures). There were so many valuable lessons from the story of Lululemon.
Passage: By ‘vertical retail’ I mean we owned retail stores and essentially sold to ourselves, eliminating the middleman-wholesaler. Typically, a vertical-retailer is able to create double the profits compared to other apparel companies that use a wholesale model.
Studying Lululemon is an incredible contrast to the performance of the DTC brands of the 2010s. While Lulu trades at a $42B market cap, Allbirds, Warby Parker and Casper have all struggled mightily as public companies. The biggest difference seems to be their approach to retail: these digitally native brands believed that “cutting out middle-men” would allow for more value-capture, but in time they learned just how hard (and expensive) it is to generate traffic. Lulu got retail right from the beginning: experiential, educational and highly engaging; perhaps unsurprising as Chip refers to Lulu as a “vertical retailer” rather than a “DTC brand”.
Passage: I wanted to focus my energies on marketing and growth, not looking over their shoulders in the store, micromanaging everything. I was choosing a leadership style of mentoring and training. My job was to develop people in the culture and get out of their way.
It’s fascinating to hear how much “culture” is woven through the success of Lulu. Chip’s awareness to “get out of the way” is easier said than done; a founder needs to protect their baby from life-threatening risks but without putting its life in the hands of employees they will never view it as their own. Employees need live reps and real stakes to learn, and they need autonomy to impact the business with their unique skills. Chip was exceptional at recognizing when he should be coach vs player, something I’m highly focused on learning as our team grows.
Passage: Rather than embrace the future of apparel, the NY media thought by calling it a “trend” it would go away. Mickey Drexler, CEO of J Crew, famously said “J Crew will not participate in the athletic trend.”
Unaverage returns require unaverage decisions, and those decisions require deep conviction in the face of educated opposition. It’s never easy to hear from the most famous leader of your industry that your idea is a bad one — I give Chip a ton of credit for not being fazed by this. I’ve said before that every investment we’ve made at Selva has been passed on by at least one investor who I admire as more knowledgeable and experienced than me. We have to be humble and curious without being tempted by the safety of consensus.
Passage: What I observed in most companies is that each individual believes they have integrity, but each person also has a different definition of it. Therefore, there is no integrity. With one definition of integrity for lululemon, we all knew what we meant.
Chip talks throughout the book on defining a language that everyone at the Company understands — that common language is non-obvious unlock of a high-functioning culture. At Selva we’ve borrowed Chip’s definition of integrity: “doing what you say you’re going to do, when you say you’re going to do it”. The definition itself we like, but it’s the common agreement that’s important. Rather than believing we all “have integrity”, we elevate ourselves to live the defined value of integrity that we’ve agreed to, and we acknowledge it if/when we fall short. This kind of intention is behind the pride I’ve always seen from the people who work at Lululemon — the kind of pride we want to see from every current and future Selva teammate.
Please drop a comment on what you think of the format and what suggestions you have for future books. Next quarter’s book will be The Hard Thing About Hard Things by Ben Horowitz.
