Thursday, August 6, 2015

Stance — Revolutionary Sock Company



When longtime tech entrepreneur and investor Jeff Kearl sat down with consumer-brand vet John Wilson in 2009 to pitch his idea for a new business, it took him a while to get to the point.

"I'm just sitting there while he talked for probably an hour, I've eaten all my breakfast, thinking, 'Is this guy ever going to tell me what it is?'" says Wilson, now Stance's cofounder and president, who had previously been the president of Reef and an executive at Oakley. "We'd known each other for a while, and Jeff was at [earbud company] Skullcandy, so I was totally thinking consumer electronics. Some cool new device. Then he threw out the most low-tech random thing. I thought he was joking. I was waiting for him to actually start laughing. He kept going and just didn't skip a beat. I thought, well he's serious, he's talking about socks."

Six years in, Stance still only makes socks; despite a legion of avid fans, it isn't (yet) a household name. But the company has attracted $86 million in funding, including a $50 million series C in March and initial investment from celebrities like Will Smith and Dwyane Wade, and signed a deal in April as the NBA's official on-court sock. Famous fans include LeBron James and Rihanna—in fact, a RiRi-designed line is on its way—and the brand has a cohort of influential ambassadors dubbed "Punks and Poets," some with their own Stance sock designs, which includes athletes and artists like Allen Iverson, Santigold, skater Andrew Reynolds, and rock trio Haim. In a startup world crazy with competition to find a niche, Stance's founders realized theirs was hiding in plain sight.

"It wasn't like there was some great idea, 'Oh geez, this is broken and we should fix it,'" says co-founder and CEO Kearl about the idea to build a hot sock brand. After a successful career backing and working with a long list of startups including Logoworks, and, Kearl had taken a few years off, and missed working with people in an office. "I didn't want to be on, let's call it, the treadmill of Silicon Valley, where it's such a badge of honor to work these long hours and live an unbalanced life," he says. "I had moved down to San Clemente, in Southern California, a sleepy beach town. There are a few tech companies there, but they all struggled to recruit. And I just thought, 'You know, it doesn't have to be tech. It can be anything.'"

Kearl looked to emulate brands like Lululemon and Under Armour that attracted huge early investment by developing one hero product that did really well. But he still didn't know what his new company would make.'

"I literally went down to Target," says Kearl. "Just started looking at categories. Maybe with a little bit of an MBA mind-set, where I was like, 'I'm going to draw a little two by two McKinsey matrix, in my head, of how these are positioned.' I started with sunblock: Coppertone, Hawaiian Tropic. Where is this stuff made? What's the gross margin? Who has what market share? It's amazing what you can Google. I did it with school supplies and jewelry and lots of categories. When we looked at socks, it was like black, white, brown, gray, with some argyle on the bottom, in plastic bags and really inexpensive. It reminded me of when Skullcandy first started in 2003. The headphone aisle was all homogenized. It was black and silver, and all looked like consumer electronics. When Skullcandy came out with this clear packaging and these loud prints, it was so different from everything else. I thought, we could totally do that for socks, because everyone's ignoring it."

And despite Wilson's initial reaction to the sock idea, it actually followed perfectly on his own experience. "Obviously Oakley weren't the creators of the eyewear category, but they were really the leaders of establishing that category the way they did," says Wilson. "Then it was the same thing with Reef, with sandals. Total dominant player, category leader." Both of those brands took basic, utilitarian items and made them lifestyle necessities through design, function, and focused distribution.
The Stance Founders
In researching the sock category, Kearl, Wilson, and three other cofounders—Ryan Kingman, Taylor Shupe, and Aaron Hennings—discovered that even big brands like Polo and Hilfiger licensed their sock business to other companies. "As we put this landscape together, we just became convinced, everyone is really sleepy here," says Kearl. "There's big room for innovation. No one's really created the lab environment where you could innovate on a platform like socks."

The innovation lab at Stance's San Clemente headquarters—known as the SHRED Lab (Sock, Hosiery, Research, Engineering, and Development)—houses state-of-the-art Lonati knitting machines from Italy, and focuses on advancement and testing in materials, fit, flexibility, wicking, and other key features of function and performance across a range of sports from running to motocross.

"Socks are such a huge part of mobility and daily comfort," says chief product officer Taylor Shupe. "If an athlete loses mobility because they have athlete's foot or they have blisters, it can dramatically affect their entire performance. So it was really important for us to diagnose the needs. At the very beginning we bought 2,000 socks. We wore them all, sometimes multiple ones a day, saying this is the material I like, this is what I don't like. And then we figured out where we were going to go."

There's no question, however, that the company's creativity in print and pattern, led by chief creative officer Henning, is responsible for Stance's exploding status as a lifestyle and fashion brand (prices range from $10 to $25, for higher-end performance socks). Patterns in all colors range from stylish takes on team logos to geometric patterns to abstract art, including mix-and-match designs that use the same color palette for variant pairs. Wilson says the company's name comes as much from the definition of "stance" related to self-expression as the definition related to sports, and the company's marketing focuses on design over performance specs.

Kearl, who grew up snowboarding in Tahoe, recalls the era when snowboarding's popularity exploded and ski companies, feeling threatened, entered the market. "K2, and Rossignol, and all these traditional ski companies, were like, 'Geez, we need to do snowboards,'" says Kearl. "Their ads in the magazines would talk about their stainless steel edges, and their p-tex base coat, and their wood core, and their flex pattern. Then the last page of the magazine would just be a guy hucking off a cliff. That was the Burton ad. To me, that's what defined a lifestyle brand."

But the style, too, connects back to the tech. Stance developed a proprietary process called INprint that sublimates images directly on the yarn, allowing the company to manufacture, for example, socks with faithful reproduction photographs of NBA legends—a style line that, along with players' personal embrace of the brand, helped the company secure its NBA deal.

"We developed this new 360-degree direct sock-dying process that allows us to permeate the fibers deeper," says Shupe. "When you stretch the fabric, you don't see the elastic on the inside, and it allows us to do it completely seamlessly. It's not only that we want to create a better picture, but we wanted to be able to execute a product that the consumer would enjoy more, because it doesn't go through the same manufacturing process of heating the sock to the point where the fibers become brittle and stiff. It was a fit innovation as well as an aesthetic one."

This balance is represented in the careful positioning of Stance as both a fashion and performance brand, with selective distribution at retailers like Nordstrom and Foot Locker alike. But the brand was built in the specialty surf, skate, and ski shops of its native SoCal. "We're in somewhere around 7,500 retail doors, and I would say 2,800 of those are specialty," says Kearl. "That's really where we built the business, at Fred Segal, and American Rag in Los Angeles, Opening Ceremony, great fashion retailers."

Kearl gives the example of Hansen's Surf Shop, a long-standing institution in Encinitas, north of San Diego, to illustrate how Stance has transformed the sock category. "They have this huge wall, with this white translucent background, with these pedestals for all the skateboard shoes," says Kearl. "Just imagine a whole wall of beautifully positioned merchandise. Next to that, before we started, they had this wicker basket on the floor with some random socks in it. That was their sock merchandise. Today if you go into Hansen's, there's a rack probably eight or 10 feet long, opposite the skateboard shoe wall, of Stance socks."

Stance's positioning has helped it find new areas of growth, such as in women's socks, which the company launched two years ago. Stance's women's business grew 160% in the first quarter of this year, and now accounts for 20% of sales, which the company attributes to the diversity of its designs and women's increased desire to reflect their style in their socks.
Kearl says that Stance was already profitable after its first $8 million round of funding, and that the company's whopping $50 million series C was more about long-term thinking than short-term need.

"The C, quite frankly, we didn't need the money, at all," says Kearl. "We were fine. The conversation, just to put it in the most simple terms was sort of like, 'Hey, board of directors, lots of really great firms are calling us. They are pounding. They are visiting us, and the sun is shining and it doesn't always shine. I know this, I'm an entrepreneur that went through 2000 and 2007. I've seen the bad times. If we could put another $50 million on our balance sheet in a pretty non-dilutive way, what do you guys think about that?' They're like, 'Well, if they're great firms, great partners, and a great valuation, you have to be opportunistic.' That's really the fundraising story. It wasn't that some VC bet on socks."

And while Stance has succeeded with laser focus on one category, the company will be literally growing from the ground up—Stance plans to launch a line of men's underwear late this year, followed at some point by women's.
"We probably wouldn't have done it so soon, because I feel there's a lot of growth left for socks," says Kearl. "It's hard enough to manage the growth we have there. But one of our retailers actually called me and she said, 'Look, every week someone comes in and says, We're the Stance of underwear. At some point, I'm going to let someone else in if you don't.' Calvin Klein is still the dominant player. Polo, to some degree, but, just like they were in socks, they're doing it the same way they always have. No one has disrupted underwear." — Evie Nagy | Fast Company

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