Protect This House

Kevin Plank's improbable hit — a sweat-wicking undershirt — kicked off the fastest-growing category of sportswear. Now Nike and other megabrands are in hot pursuit of Under Armour. Welcome to the disrupter's dilemma.

The ad needs a shot of adrenaline, a killer riff. "Right there," says Marcus Stephens, watching the commercial for the umpteenth time. He breaks into air guitar: "Wherrrrrrrrrng! Loop it there a few times. Wa-wa-wherrrrrrrng!" The creative team from Under Armour is working overtime to fine-tune a new 30-second spot. The company makes premium athletic clothes that stay remarkably dry and light when you sweat and sell as fast as Under Armour can sew them. The ad is scheduled to air in two weeks, during the pre-Oscars hype, but the latest version is due tomorrow. "It's always crunch time," says Stephens, the creative director.

Maybe so. But this crunch is like no other in the life of nine-year-old Under Armour. The new commercial is aimed at an entirely new audience: women. It could catapult what has been until now a testosterone-driven brand to the next level. The company is an unlikely would-be giant killer in an industry in which Nike, Adidas, and Reebok are so dominant that it seems inconceivable that a new brand could get noticed, let alone thrive. But Under Armour has done both. Much as JetBlue snuck up on the airlines, Under Armour snuck up on the sports giants. If you haven't heard of the brand (it helps to be a male jock in high school or college), you will next time you shop for exercise clothes.

Founder and president Kevin Plank, 32, almost single-handedly launched a new sportswear category out of whole cloth — specifically, out of sweaty undergarments. Plank, a former college football player, worked with manufacturers to create a comfy shirt to wear under football pads. Cotton absorbs sweat, but he found that a polyester blend wicked perspiration off the skin. The moisture evaporated quicker. The fabric stayed light. It made athletes feel faster and fresher, Plank says, which gave them a psychological edge. It didn't hurt that his football shirt was as silky and snug as Superman's suit.

Performance apparel may be a small category compared with, say, the $9 billion sneaker market. But it's now the industry's fastest-growing sector. During the past four years, annual retail sales have jumped nearly fivefold to more than $400 million. Under Armour, one of the country's fastest-growing private companies, has developed apparel for various sports, climates, and settings — loose-fitting shirts, sweats, batting gloves, even sports bras and boxers — available at more than 6,500 stores worldwide. The brand dominates the category so much — with around 75% market share — that the name has become synonymous with the product. Under Armour is like Kleenex or Band-Aid.

And therein lies the trouble. Plank may have caught the megabrands snoozing, but now they're wide awake, and his company is under siege from Nike Dri-Fit, Adidas ClimaLite, Reebok Hydromove, and others. "We're not taking this lying down," warns Ken Barker, director of apparel at Adidas America. "It's a war."

Under Armour is facing what might be called the "disrupter's dilemma," the exhilarating and perilous "what now?" moment that upstarts dream of — and fear. It's the mirror image of the "innovator's dilemma" famously formulated by Harvard Business School's Clayton Christensen, who explored how dominant companies can be upended by disrupters bearing new technologies. But if the established players respond nimbly, it can be the disrupter that comes under pressure. Innovators that have stirred sleeping giants recently include Netflix, after its mail-in DVD-rental service took off; TiVo, after it launched an easy-to-use digital video recorder; JetBlue, after it made flying less expensive but more enjoyable; even Apple, after the iPod became an icon. In each case, the hunter becomes the hunted and tries to avoid becoming another cautionary tale — the next Netscape. That Web pioneer introduced its hot browser and was subsequently crushed by Microsoft's Internet Explorer.

To survive, a disrupter has to grow beyond its niche, developing new products and innovations that reach new customers. At the same time, it has to protect its turf, differentiating itself from an increasing number of copycats. Other than the harrowing years of launching a business, this maturation ranks as one of the most challenging periods for companies, says Adrian Slywotzky, managing director of Mercer Management Consulting and coauthor of How to Grow When Markets Don't (Warner Books, 2003). It puts everything that worked up until then to the test: the business model, the leadership, the customer connection, the brand.

Companies need to branch out in a way that makes strategic sense and at a pace they can manage. For instance, Starbucks built on its early success by saturating a local market with multiple locations. It dominated Seattle before it applied the same strategy elsewhere, one city at a time. "You have to ask, 'Which are the segments where my model gives me an advantage?' And, 'What will it take to establish a leadership position?' " Slywotzky says. "For every Starbucks example, you have, I don't know, 30 more companies you've never heard of because they didn't ask the right questions and didn't make it."

Ten years ago, the upstart sports brand trying to make the leap from disrupter to major player was No Fear. The company said it was creating a new category called "attitude apparel." Its shirts and hats featuring in-your-face slogans such as "Second place is the first loser" were all the rage among teenage boys. No Fear was fearless, expanding into the hypercompetitive shoe market and airing its first TV ad during the 1995 Super Bowl. Soon, though, Nike and other competitors came out with their own attitude apparel, while No Fear stumbled because of its limited distribution network. Before long, the company was reduced to a niche player, a motocross brand.

Most people out there are saying we're going to trip up at some point — it's just a matter of when. Our job is to prove them wrong.

Plank is determined not to let that happen to Under Armour. "Most people out there are saying we're going to trip up at some point — it's just a matter of when," he says. "Our job is to prove them wrong." The key to Under Armour's next growth spurt, he says, is winning over women — no small feat for a company started by football players for football players. The ad on Oscars weekend is part of a delicate and complicated strategic shift: This supermacho brand doesn't want to alienate its core customers by offering something called the Power Thong for women. And there lies the fundamental test of a brand as it evolves. How do you stay true to your roots while simultaneously attracting a broader market?

So far, Under Armour has defied the odds. In a market considered impenetrable, says Paul Swangard, managing director of the Warsaw Sports Marketing Center at the University of Oregon, "we have an interesting new battle on our hands."

Be Like Nike

Under Armour and Nike are the top sellers of performance apparel — in that order. But that's just one category. In the grander scheme of things, Under Armour's annual revenue, more than $200 million last year, is practically a rounding error for the $13 billion Nike. David, meet Goliath.

Nike declined to comment on Under Armour. Its recent push for Nike Pro performance apparel, however, speaks volumes. The ads, aptly named "For Warriors," were one of its largest apparel campaigns ever. The budget, reportedly $30 million, exceeded Under Armour's ad spending for all of 2004.

It's enough to make a small company sweat. Unless, that is, you're Under Armour. The 450-employee staff exudes Plank's unwavering, understated confidence. The company got this far on smarts, hustle, and creativity: grassroots marketing, athlete-aided product development, a TV ad that became a phenomenon, a must-have logo, and a rabid following. Sound familiar? It should. Nike did practically the same thing.

Nike founder Phil Knight and Plank both started their companies shortly after college. Both were former athletes: Knight on the track, Plank on the gridiron. "When I first started, I believed every kid playing football would be wearing an Under Armour shirt in two years," he says. "I was a young punk who thought he knew everything." Plank was also a fast learner. After some of his University of Maryland teammates wore his shirts while playing on the lacrosse and baseball squads, he saw the product's broader potential. "I realized, I don't just have a product," he says. "I have a market."

Both entrepreneurs disrupted the industry by working under the radar at first to build a loyal following among athletes. Just as Knight sold shoes out of his trunk at track meets, Plank loaded up his Ford Explorer and visited locker rooms throughout the Atlantic Coast Conference starting in 1996. He befriended players as well as equipment managers. It didn't take long before the distinctive logo — an overlapping U and A — appeared in college and pro games, bowl games, the Super Bowl. Plank let his customers' needs drive product development; when they requested long sleeves or cold-weather clothes, he drove to New York's garment district and created them.

Plank is a natural-born entrepreneur. From the time he was a boy in Kensington, Maryland, he has run one enterprise or another. Shoveling snow. Mowing lawns. Delivering roses in college. If the football-shirt idea didn't take, he had a backup: catering crab cakes at pro-golf tournaments.

His innovation wasn't inventing the fabric. Nike and Adidas had already developed moisture-management fabrics. What he did was recognize the appeal of a compression undershirt and other forms of polyester-blend "base layer" apparel (even though it costs two to three times as much as its cotton counterparts). Because he was thoroughly outmanned, he had to do more with less. He recruited dozens of college and pro players as his unofficial marketers. "Try it," he told them, "and if you like it, give one to the guy with the locker next to you."

The underdog had to figure out ways to get more bang out of its tiny marketing budget. For Under Armour's first TV ad in 2003, the goal was to create a spot that would live longer than its 30 seconds on the air, says Steve Battista, director of marketing. The commercial showed a football squad huddled around Eric Ogbogu, one of Plank's former teammates and a defensive end for the Dallas Cowboys. He shouted, "We must protect this house!" as if his life depended on it.

The reaction was a marketer's dream — more than 50,000 calls and emails from athletes, coaches, even execs. Consumers sent in stories and tapes of themselves invoking the rallying cry at games, and even at sales meetings. protect this house! banners appeared at NFL stadiums. ESPN anchor Stuart Scott and David Letterman quoted the phrase. It became shorthand for the brand, like "Just do it."

Protecting Its House

The disrupter's dilemma is not a new challenge for Under Armour. But Plank knows that the battle gets fiercer and the stakes higher the larger he grows, and he's not taking anything for granted. On the whiteboard in his office, in a former Tide factory in Baltimore, one word stands out: attack. "Protect this house doesn't mean sitting back on your haunches," he says. Plank, who played fullback at Maryland, looks like he could still take care of business on third and goal. He wasn't the most talented player, former teammates say, but he was fearless.

He's that way in business, too. The first time Under Armour designed a women's line a few years ago, he pulled the styles at the last minute. Losing $600,000 in potential revenue was painful, he says, but it was the right decision: The quality and fit were poor. The next time, the company relied on more female designers and athletes, and it paid off. In just 12 months, Under Armour was producing the second- and third-best-selling sports bras. More than any other product, says Raphael Peck, vice president of apparel, "the sports bra is how you win credibility with women."

Unfortunately, most women don't know Under Armour, and if they've seen previous ads or borrowed a boyfriend's shirt, they probably assume it's for guys. The macho pitch won't work, not for hot-pink sports bras. Yet Under Armour can't feminize the brand. It has to speak to athletes, period. The TV ad for this year's new women's line shows soccer star Heather Mitts doing her morning workout. She's best known as a member of the Olympic squad that won the gold last summer. Like Ogbogu, she's intense and fit, but not intimidating. Mitts doesn't utter Under Armour's signature catchphrase, but "the message is still about passion and emotion and performance," says Plank. And the ads are unlikely to turn off young males: Last year, Mitts beat out Anna Kournikova and others in ESPN's online vote for "hottest female athlete."

The company needs more than new customers, though. Last year, 90% of its sales at the Sports Authority, the largest sporting-goods chain in the United States, came from just 27 products, says Doug Morton, the chain's CEO. This year, it's up to 50. Peck is building a pipeline of new products and patented technologies (Under Armour now makes more than 300 products). But here, too, the company has had to figure out ways to outmaneuver players with vast R&D resources. So Under Armour teamed up with the Human Performance Lab at East Carolina University in North Carolina, whose research led to the new Metal Series, with lightweight mesh in the underarms and back to provide ventilation. Metal, the company's most technical and expensive line yet ($50 for a short-sleeve top), is selling nearly twice as fast as expected.

As Big or Small as It Needs to Be

As a disrupter grows, it must decide which techniques that worked for the company early on no longer apply, so it can operate like a mature organization. At the same time, it can't lose the competitive advantages of a scrappy startup — in Under Armour's case, speed, daring, and strategic relationships.

The original Under Armour, where Plank infiltrated locker rooms and once tracked down Oliver Stone to get the unknown brand in the movie Any Given Sunday, is alive and well. Twelve members of the sports marketing department do exactly what Plank did: Hang out in locker rooms, distribute samples, and schmooze with players and equipment managers. "Nothing has changed," he says. "There are just more zeros."

The company can't rely on athletes alone for exposure: It's just too expensive. Nike pays thousands of jocks to wear its gear, including such superstars as Lebron James, who signed for a reported $90 million. Under Armour does what it can, paying a few dozen pros, including the Texas Rangers' Alfonso Soriano and ski phenom Jeremy Bloom. Under Armour also looks for unofficial endorsements. "One of our high-profile guys wears it even though he has a contract with Nike," says Mike McCord, equipment manager for the Dallas Cowboys. And one member of the marketing team works in Los Angeles pursuing product placements full time. In exchange for free gear, Under Armour has appeared in nearly 50 movies, including Million Dollar Baby, and a dozen TV shows, including The Apprentice.

Plank cultivates retailers as intently as he did when he was just starting out. He makes himself available to them by phone or in person, unheard-of access for bigger companies. Under Armour doesn't operate its own stores (as Nike does) or distribute through discounters or department stores (the lone exception is its new line of everyday skivvies), so retailers don't worry about additional competition or a surplus of price-deflating inventory.

But Under Armour also acts big when and where it needs to — and can sometimes outperform the big guys. Thanks to a state-of-the-art 350,000-square-foot warehouse, it can pack products by SKU, size, and color, and ship to the Sports Authority's 400 stores within days.

The Alpha Underdog

Could Under Armour be the next Nike? Some retailers say yes, but Plank won't bite. The category has room for two brands, he says, and his will be one.

This David and Goliath story isn't over yet. It's too early to celebrate anything. But a tantalizing question lingers: Could Under Armour be the next Nike? A number of retailers think Plank is on the right path, but he won't bite. The category has room for two brands, he says, and Under Armour will be one of them. Even when Nike's "For Warriors" ads were blanketing the airwaves, Under Armour's new $20 shirt was selling out. More important, several months after the Mitts ads hit, women's-apparel sales have increased from 13% of the total to 19%.

The growth curve to becoming a $1 billion company is lined with pitfalls and uncertainty, but don't underestimate Plank. He has a 32-year-old's optimism and ambition and a 50-year-old's levelheadedness about managing a larger organization, the danger of trying to be all things to all people, and his own limitations. "My number-one asset is knowing what I'm good at and what I'm not good at," he says, which is why he surrounds himself with industry veterans. He readily seeks advice from Gap chairman Bob Fisher and eBay CEO Meg Whitman (members of Under Armour's private-equity investor board), and from former Nautica CEO Harvey Sanders.

It also helps to be an inspiring underdog and overachiever, the sort of person who made the Maryland team as a walk-on after the major college scouts snubbed him. Walk-ons rarely play, but at 5-foot-11-inches and 229 pounds, Plank became a starter and eventually a team captain. He has faced bigger, stronger opponents before, like the time he was assigned to block his buddy Ogbogu in practice. The 6-foot-4-inch, 269-pound Ogbogu wound up on his back with a concussion. That, Nike might want to note, is the kind of competitor Plank is.

Chuck Salter is a Fast Company senior writer based in Chicago.

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