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May 22, 2008

The "Most Innovative Small Business"... Doesn't Advertise

Name that company. (Hint, 30% margins):

Year Sales
2002 $100,000
2006 $18,000,000
2007 $30,000,000+

Think they're on to something? Clearly.

They must be selling some high tech product using some high velocity advertising method (like direct response radio), right?

Wrong.

In fact, they don't advertise.

And they don't sell a high tech product.

The company is Threadless, and they sell t-shirts. Yeah, $30 million worth of t-shirts.

Threadless is profiled in the recent Inc Magazine. Get this:

"Revenue was growing 500 percent a year, despite the fact that the company had never advertised, employed no professional designers, used no modeling agency or fashion photographers, had no sales force, and enjoyed no retail distribution. As result, costs were low, margins were above 30 percent, and -- because community members told them precisely which shirts to make -- every product eventually sold out."

Sure, these are great numbers, but how are they doing it?

"...a new innovation model that is quietly reshaping a host of industries. Whether it's called user innovation, crowdsourcing, or open source, it ... completely blurs that line of who is a producer and who is a consumer," says Karim Lakhani, a professor at the Harvard Business School. "The customers end up playing a critical role across all its operations: idea generation, marketing, sales forecasting." This idea goes against a basic principle that has been taught in business schools since the invention of mass production: Employees make stuff, and customers buy it."

That's a lot to digest. But it's worth it.

And once you've digested that, just think about what would happen if the core user base Threadless depends on could be expanded leveraging a flexible, measurable, scalable and highly targetable medium like direct response radio. Why think about that? Because a) someday growth will slow and the VC's won't like that, and b) a competitor, eyeing your 30+% margins, might just think about it, too.

Posted by Jeff Small & Brett Astor at 07:50 PM | Permalink