Ask The Legends: Chip Wilson

The Lululemon founder shares the best business lessons he's learned

Written by PROFIT staff

Career highlights:

  • Earns a BA in Economics from the University of Calgary in 1980
  • Upon graduation, launches Westbeach Surf Company, a manufacturer of surfing apparel, after being unable to find surfwear to fit his tall, stocky frame; changes the company’s name to Westbeach Snowboard in 1993 when he recognizes a growing trend in snow- and skateboarding
  • Sells Westbeach, which had $15 million in revenue, in 1997
  • Launches Lululemon Athletica in 1998 with a mission to provide people with components to live longer, healthier and more fun lives
  • In 2004, is named Ernst & Young’s Canadian Entrepreneur of the Year for Innovation and Marketing
  • In 2006, raises US$195 million from two private-equity firms
  • In 2007, with 52 locations and 650 employees, Wilson takes Lululemon public, raising $328 million and boosting his personal net worth to an estimated $1.8 billion
  • Inducted into the Marketing Hall of Legends in 2010
  • Today, Lululemon retails its products in more than 110 stores across North America and internationally

What was the most important element to your successful startup?

There were two things. First, we had a brand new product that really reinvented clothing — a black lycra tight that became something people could wear all day long rather than just in the gym. The other thing was that, right from the beginning, I’d set up the company with a platform for it to grow really fast — a mission statement, a vision, a code of conduct, a training program, even how the store was to be laid out. I’d read a book called The E-Myth [by Michael Gerber], which is about how to set your company up in such a way that, theoretically, you could franchise it. Everything is under so much control that the entrepreneur can actually go on a holiday and things will still operate correctly.

What was the biggest challenge during Lululemon’s startup phase?

Because Lululemon is a vertical retailer [it manufactures what it sells], the biggest issue is really achieving the necessary economies of scale in production. You can’t go into production with just one store; you really need five or six stores to get any kind of volume to be able to avoid the middleman. I really didn’t make money for a long time — not until I got four or five stores up and going.

When you started the company, how much startup capital did you have, and where did you get it?

I made about $1 million when I sold Westbeach [the boardwear company he launched in 1980], although I was down to $800,000 after paying taxes. I bought a house for half a million — which, in Vancouver, will buy you a shack — fully paid it off, then borrowed $300,000 on the house to start Lululemon.

What impact has [controversial training company] Landmark Education and its programs had on you and your management of the business?

The Landmark program helps you understand the connection between integrity and performance. The definition of integrity is doing what you say you’re going to do, when you say you’re going to do it. It’s recognizing that what you say and how you say it determines your effectiveness in life and also determines the type of people you end up surrounding yourself with — because people surround themselves with like people. I was looking for something that would be a catalyst for people to be leaders and managers more quickly, and Landmark was the best thing I saw.

How do you identify employees who have the passion and work ethic to fulfill your vision for the company?

I believe in the law of attraction — that quality attracts quality. So, I build quality, and quality people come. I have always hated to go out and find people. That comes from an experience I had in Europe. I was wholesaling, and I went to a trade show to find distributors. The ones that I got the first couple of days were unbelievably strong and stayed with me for years, whereas the ones I had to go out and look for and plead to work with me I found were dismal, not really enrolled and had other agendas. And I’ve found the same thing with employees. The people whom I’ve had to ask to come work for us are all gone now.

What are the top three things you look for in a candidate for a senior position?

No. 1 for us is culture, including believing in the Landmark training program. No. 2 is that they have to have a real love and passion for their expertise. In other words, we’re probably hiring people at that level because they’ve got something that we want. But it’s not enough to just have it. We look for someone who wakes up in the morning and not just does their job but actually loves it — loves to dilly-dally with numbers or design something, or someone in logistics who just loves to get product there on time. Someone who just eats, lives and breathes it. No. 3 is they have to be mentally healthy. We attract a lot of people whose lives aren’t working for them, and they think it’s up to us to make them better. But that’s not who we are.

The original Lululemon store in Toronto was a franchise, which you eventually bought back from the owner because of a disagreement. What did that experience teach you about how to franchise?

The franchisee was all about fashion, all about looking good. Not that that wasn’t important; but on the West Coast, looking good means being functional first. Our vision is to take the world from mediocrity to greatness. But how he trained his people and how he set the store up wasn’t about making people’s lives better; his vision was all about beauty and selling to make people look good, as opposed to making the inner part of the body work. It made a fortune, but I think it would have wrecked the company in the long run if I would have let it continue. Today, before we get into business with anybody, they have to do the Landmark course to find out if they have integrity or not. They have to take that course and they have to love it. And if they do, then we’re willing to talk about doing business with them.

Some of your manufacturing is still done in Canada, but some is done in Asia. Why the split? At one point in time, everything was manufactured domestically.

The bottom line is that there aren’t many sewers left in B.C., and all the sons and daughters of the sewers that are here have MBAs. And there are no fabric mills now in the eastern U.S. or Canada. So, it makes no sense to make fabric in the Orient, ship it all the way to Toronto or Montreal to get it made, and then ship it all back to Vancouver. That’s just crazy talk. All the critical mass for manufacturing of clothing is in the Orient, right from the fabric mills to the manufacturing to the sewers to the infrastructure. So, it just makes sense. We do as much as we can in Canada, and a lot of that is for quick turnaround.

What’s your best advice for small retailers who want to succeed in these challenging times?

The wholesale model is dead. You can see it with the big department stores like The Bay and Saks and Macy’s; all the big name brands have moved on and opened up their own stores. Eventually, there’s very little life left in being a wholesaler. So, I think you have to figure out how you’re going to get to be a vertical retailer. Do a plan, bring in some money and partners, and get yourself to the economy-of-scale level where you can be vertical. Figure out who the manufacturer [of the products you sell] is, figure out how to open maybe eight, nine, 10 stores, and then have the economy of scale to be able to go over to the Orient and get it manufactured without the middleman and, basically, make a larger margin. There’s just more money in it.

Lululemon raised a lot of venture capital a few years ago. What’s your best advice on working with VCs?

I think private-equity people are fantastic if you get the right ones. The advice I always got was that you have to want to go out for dinner with these guys for the next five years and hang together because you respect each other and you like each other’s personalities and know that you both have the same goals.

I think that the biggest challenge that private-equity people have is managing the entrepreneur ego. Entrepreneurs are good at starting things, but they aren’t necessarily good operators or good at taking a company to the next level. So, you have to be willing to check your ego outside in order to make more money. And entrepreneurs have to recognize the goals of venture capitalists. VCs want to be in and out in five years. Their goal is to make money.

The road to the U.S. is littered with Canadian retailers and manufacturers who failed in their U.S. expansion attempts. What have you done right, in terms of expanding stateside?

The reason I sold to private-equity people was not because I needed the money. It was really to bring in expertise and a U.S.-centric thinking to the business so that the perception in the U.S. was that Lululemon was almost like a U.S.-funded, U.S.-conceived brand. But probably the most important thing is that we had a distinctive product, and we had the cash cow from Canada to be strong in those beginning years in the U.S.

You have not been the CEO of Lululemon for several years now. How did it feel to surrender that role and take a secondary position in the company?

First off, I didn’t have to. I chose to. I did it because I knew that I wasn’t an operator. I could run a company up to $100 million, no problem, but I didn’t have the skills to operate it after that. But I love to learn. So, today, I probably could run a half-billion-dollar company, because I’ve been able to observe how it’s been done. But I would never have been able to do that before.

What is one yoga technique that will help someone in business?

Concentrating on breathing, so you can live in the moment. Creativity comes from living in the moment. Imagine being knocked over the head and waking up with amnesia, $20,000 in your pocket and nobody knows who you are. You have the ability to recreate your life without the constraints of what your mother thinks you should be doing, what your friends think you should be doing, whatever you think you can and can’t do. That’s living in the moment.

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