Unlike a lot of startups bolstered by VC bucks and big expectations, Stitch Fix knows when to button up and get to work.
When I met with CEO Katrina Lake early last year, I had the distinct impression that she didn’t really want to talk to me. We met in the San Francisco offices her company occupied at the time. They were larger than the apartment-slash-headquarters she’d operated from while finishing up at Harvard Business School, but the space felt crowded with its four full-time employees, handful of part-timers, and racks of on-trend women’s clothes and accessories waiting to be plucked, packed, and shipped in personalized, five-item "fixes" that customers could try on, keep, or return according to their whims.
Lake agreed to speak for a story about subscription commerce companies but only on the condition that neither she nor Stitch Fix would be the focus. Stealth—not the hardly quiet "stealth mode" we hear about so frequently—was a linchpin of her business plan.
"For the first year or so, we were very tepid in terms of not wanting to do any features. We didn’t want to blow the gasket off the model," she told me recently.
In fact, the company, which has grown from a few hundred shipments per month in its early days to an average of 2,500 per week in April, has eschewed traditional marketing for word-of-mouth buzz-building, mostly among bloggers, and it's bypassed opportunities to grow fast early on in order to collect data.
"We actually needed a lot of data and a lot of historical data…and we couldn’t have as accurate of buying and styling now if we didn’t collect that data over that course of time," Lake says.
Though Lake admits that holding back was hard ("they were tough decisions"), the approach worked: Revenues more than doubled from December 2012 to the end of the first quarter this year.
"They’ve really let the business grown organically, there’s been no marketing dollars spent yet….The business is growing at a pace where [Lake] can make sure she can scale," says Julie Bornstein, Sephora’s chief marketing officer and a Stitch Fix board member.
Instead of spending hefty sums to drive up the user base, Lake has preferred to collect customers slowly, with wait times for prospective members varying depending on a person’s size, style preferences, and the compatibility of those factors with current inventory.
"It actually took us 8-12 months to refine the model to be able to be consistently styling well," she says.
The pace has raised eyebrows in some circles.
"Probably the number one question we get from VCs is, ‘Why aren’t you growing faster and why aren’t you spending more on acquisition?’" Lake says.
The reason is twofold. The company aims to bring in new customers only when it can reasonably expect to deliver to the newcomers what’s promised, a shipment of stylish, moderately-priced clothes and accessories personalized according to the individual preferences. Doing that effectively has involved moving slowly forward through customer shopping cycles over the last two years, taking the time to analyze data about customers and their behavior and using those findings to further refine the experience for future fixes.
"They’ve grown in a restrained way because [Lake] wanted to make sure they had the right mechanics in place," says Bornstein.
According to the company, more than 60% of customers becoming repeat clients. It’s a circumstance that has, at least in part, contributed to the need for a 90,000-square-foot warehouse near San Francisco.
Stitch Fix also embraces a data-driven approach to problem-solving that parses out resources to technical projects guaranteed to increase operational efficiency and improve customer service. Instead of anticipating what tools are needed, Lake’s team tends to build for existing problems. "Building reactively…has been a more efficient way for us to build," Lake says.
That has included creating an internal "styling cockpit" platform that allows company stylists to visualize client information and current inventory displayed, according to Lake, "like a mix of a social media profile and a Pinterest page," as well as an in-house application to optimize the returns process that ultimately doubled productivity in the warehouse.
The company announced the closing of its $4.75 million Series A funding round, led by Baseline Ventures and Lightspeed Venture Partners with participation from Western Technology Investment, in February and now works with about 150 brands. Key hires such as former Netflix-er Eric Colson as chief analytics and algorithms officer and Walmart.com’s Mike Smith as COO signal continued momentum.
Still, Lake carves out time for routine tasks such as reading every blog post written about the company, styling and packing fixes (she assembles five fixes a week and spends part of a day in the warehouse each month), and evaluating fixes from the customer perspective, thanks to a secret client account she orders from.
"I still remember what it was like to be really small, and I think it’s really important to have that be part of my day," Lake says.
[Image: Flickr user TschiAe]