From Seed to IPO with Katrina Lake
When Katrina Lake founded Stitch Fix in 2011, there was one question on her mind: How are people going to buy clothes in the future?
“I felt like there were a lot of people looking at things like the future of transportation,” she said at the 2019 Female Founders Fund CEO Summit. “But I felt like no one was really thinking about which jeans are going to fit your body best. There’s this migration that’s happening from stores to online, and yet it’s really hard to figure out what’s going to fit when I’m nursing or what’s going to work for me when I’m 5’ 2”. Those are nuances of products that you really can’t tell in e-commerce.” Originally, she started looking for jobs at companies solving that problem, but couldn’t find any doing it effectively.
“It took me awhile to figure out that I could start the company,” she said. Lake ended up working at a venture capital fund, where she met first-time founders who started companies without “relevant” experience. “I had this realization that was like, ‘I could do this too.’ And so I got here almost by process of elimination,” she said.
Her mother was a public school teacher and her father is a doctor in the public university system, so her parents were initially concerned when she told them she was quitting her VC job. “I was like, ‘Dad, people don’t stay at jobs for thirty years anymore.’” Since then, Stitch Fix has achieved unicorn status and gone public.
Here are some of the biggest takeaways from Lake’s keynote about her journey.
On business school
“I went to business school with the intention of using that time to found a company,” she said. “I was not cut from the cloth of somebody who was going to be able to quit my job, have no income, and live in a garage.”
Ideally, Lake wanted to start a company, pay herself a salary, have the company funded, and pay back her student loans the day she graduated. “Worst case scenario I would have an MBA from a great school and have a lot of opportunities, so that was the way I was able to stomach the idea of entrepreneurship.”
On not having “relevant experience”
Aside from working at a Banana Republic store and a smoothie shop, Lake didn’t have any retail industry experience when she started Stitch Fix. “Ironically, I think it helped me see the problem in a different light,” she said. One retail expert sat her down and said her idea for Stitch Fix would be an inventory nightmare. “With his decades of experience, it made it hard for him to see possibility outside of what he already knew. I didn’t understand why you couldn’t do things, and in so many ways, that was such a benefit to me.” During the first eight months of the business, there was no website, and Lake was using either a Google Doc or SurveyMonkey to pilot her idea.
“Even when we didn’t have a website it was crazy how difficult we were making it, and yet people were waiting and excited and kept coming back,” she said. “Even when the venture community wasn’t saying yes, our clients were saying yes, and that was a really powerful motivator and signal to me that this company deserved to exist.”
On fundraising
“I didn’t set out to say, ‘I’m going to build a big company and I’m going to raise as little money as possible,’” Lake said. “There are some people who are really focused on that. There was a lot of benefit that came from it, but I was out there trying to raise tens of millions of dollars and getting lots of no’s.”
When forced, the company had to figure out how to be more capital-efficient. They were paying vendors right upon invoicing, turning over inventory really quickly and selling product before paying vendors as not to dip into the Stitch Fix bank account. In other words, the company changed its cash cycle “so that you are receiving money from your clients before you are paying your vendors so that you don’t have to invest cash into growth.” Additionally, Lake cites organic growth and influencer marketing as a way to save money.
On investing in a team
“Being in the early stages, you can give people a lot of equity,” she said. “When you are able to give equity early on, you’re able to get big name people who are excited to take a risk who can help you to scale.” Within her first year, she recruited Walmart.com COO Mike Smith and Netflix algorithms VP Eric Colson, who are still on the Stitch Fix leadership team today. During the B or C rounds, it becomes more difficult to offer equity to recruits.
“In the early days, if you can be like, ‘I can give you two points of equity and my company might be worth 3 billion dollars one day,’ that’s an amazing value proposition.” In the B and C rounds, she said, founders end up not being able to give out huge chunks of equity unless they push their venture investors to allow that. “People don’t realize the best time to hire big talent is in that really early stage,” she said. “The hard part is finding someone who can roll up their sleeves and do it.”
On recruiting
“I had a long list of people I’d love to meet,” she said. She was agnostic about their role, in the sense that she wasn’t sure if they would be good recruits or advisors or more informal mentors. “This was where it was helpful that I didn’t know anyone. I looked at LinkedIn like the yellow pages. I was like, ‘oh I’m going to look up someone who’s good at algorithms,’” which is how she found Colson. “I had so much naiveté, some cases I reached out to them, other cases I had a connection who could introduce me. In retrospect, I was lucky I didn’t just build the team with random people I crossed paths with because there are amazing people out there.”
On harnessing social media
The personal styling company’s “Fixes,” or curated shipments of clothes and accessories, have became a popular topic for bloggers to write about. When Stitch Fix launched, bloggers were the influencer of choice, and so the company tapped into the microblogger community, where bloggers had tens or hundreds of thousands but not millions of readers. These days, the most influential bloggers are posting on Instagram.
Across all forms of social media, Lake says the broader question is, “how can we meet people where they are?” Stitch Fix is active on all the various platforms, but customers have built their own social media communities, too. For example, there’s a Facebook group of Stitch Fix customers not maintained by the company.
“Even in the eight years I’ve had this company, where people are spending their time on the internet has changed dramatically, but the activities of what people are trying to do has stayed the same,” Lake said.
On mentorship
Lately, Lake has had to turn down meetings with newer founders looking for guidance, because her time is spread thin as a public company CEO with two young kids. She is, however, carving out time on most Mondays for an Instagram series called “Mentoring Monday” in which she fields questions from entrepreneurs on things like returning to work after mat leave, managing your inbox, raising capital, motivating employees, and building a team. She’s looking forward to the time in her life when she will be able to advise newly-minted founders during the earliest stages of their journeys. While she found mentorship helpful, she also places a high premium on peer mentorship.
“The idea of everything is possible is a really important mentality,” she said, noting she was lucky to have supportive friends who encouraged her when she told them about the risks she took. Being surrounded by fellow founders in the Bay Area and New York was a plus, too.
On the low times
“At one point we were eight weeks away from not making payroll,” Lake said. Her COO, Mike Smith, and Chief Algorithms Officer, Eric Colson, both had kids, and there were 10 or 15 people on the team who had huge salaries they forwent for equity in Stitch Fix. Staring at the bank account knowing she was eight weeks away from not making payroll, Lake was more concerned about them than herself. “I was not married, I didn’t have kids, for me I learned a lot, and would do it again,” she said. “Many years later I shared that with them, and they were like ‘I can’t believe you were stressed about that. We would have been fine we would have gotten other jobs. We were worried about you.”
Ultimately, Lake’s success comes from her ability to learn on the job, and jump in headfirst without conforming to expectations. “The currency I had was authenticity,” she said “I could be sharing the truth and I could be building a connection in a way that people could relate to it.” Even though not everyone in the retail world understood her approach, her customers appreciated it.
Once, after delivering a talk, someone sent her a note saying she should try to cut down on the number of times she said the word “like.” “‘When you say ‘like,’ it makes you sound young and inexperienced,’” she quoted. “I was kind of like, I am young and inexperienced. Why should I try to pretend to be like old and experienced?”
Nowadays, with a successful IPO to her name, she rejects labels altogether, choosing instead to make bold moves that show how female founders can break the mold by embracing what makes her unique.