Katrina Lake ditched plans to attend med school to instead pursue business. Then she left a successful career in venture capital to attend business school with the ambition of starting her own company. Lake founded Stitch Fix out of her apartment while still in school. The company is both an e-commerce site and a personal shopping service. Clients are paired with personal stylists to fulfill their fashion needs, such as a dress for a special occasion, a suit for work, or a new trendy piece. Clients fill out surveys about their style preferences, budgets, and body types, which stylists then use to select five garments (“fixes”) from the Stitch Fix inventory of curated fashion. Clients pay a $20 styling fee, buy the clothes they like, and return the rest.
Lake, 33, now oversees five distribution centers, four office spaces, and thousands of stylists working across the country to ship out millions of fixes to clients.
There were three powerful women who let me know that anything was possible. My great-grandmother and her sister both lost their husbands early in life. They had five kids between the two of them. They combined their households — one went to work, one stayed home to raise the children — to get through a tough situation. My grandmother grew up in war-torn Japan during World War II. She dreamed of being an American. She encouraged her two daughters, one of whom is my mom, to move to the U.S. and pursue a life here, and then she moved herself here too even though she didn’t know any English. Because of the influence of these women, I’ve always looked at challenges as an adventure.
I grew up in San Francisco until I was about 15, then I finished high school in Minneapolis. I came back to the Bay Area to go to Stanford, where I majored in economics and also took all the pre-med requirements. As graduation neared in 2005, I realized I didn’t want to be a doctor. I just didn’t love the environment [of hospitals and labs]. It wasn’t as collaborative or intellectually stimulating as school, where you’re constantly working with other people.
When it came time to look for jobs, I focused instead on business. As an economics major, consulting was a familiar career track, and I knew it would expose me to different industries and give me a lot of general business knowledge. I ended up at the Parthenon Group, which does strategy consulting. It was the analytical work that I loved in a team environment that I craved. I worked with clients like IHOP, Applebee’s, and eBay, and got lots of exposure to retail and restaurants, which became the two industries I was most interested in.
I REALIZED THAT IF I HAD A VISION, I COULD JUST CREATE A COMPANY MYSELF.
After two years, I wanted to find a company really doing something innovative with technology and the customer experience in retail. My observations were that going to Macy’s today is exactly the same as it was in 1970. I wanted to be a part of the company creating the vision of what the future Macy’s would look like. When I couldn’t find that, I ended up taking a job at a venture capital fund, which gave me exposure to the business world on a different level. After meeting hundreds of entrepreneurs over two years, I discovered not all of them [looked like] Mark Zuckerberg, sitting around coding in their hoodies. I realized that if I had a vision, I could just create a company myself.
I decided business school would be a great next step in giving me the opportunity to [learn how to start a business] and also give me a backup plan. My goal was to have a company off the ground by the time I graduated. But the worst-case scenario was I would have an MBA and a lot of opportunities ahead of me.
I ended up at Harvard after being waitlisted. I had some scholarship money and mostly student loans to pay for it all. Harvard had a program where they would subsidize students to work at small companies over the summer. I sent out my pitch to a handful of businesses telling them what my interests were and what I could do for them, and I ended up at Polyvore in San Francisco. This is where I met Sukhinder Singh Cassidy, who was then the CEO.
I think I underestimated how big of an impact working for a powerful woman would have on me. I wasn’t thinking, Oh, I could really use a female role model in my life. But just watching her inspired me. She was the first woman [executive] I met who had her own authentic leadership style not modeled after a man’s. It was my first exposure to seeing how there is more than one way to be successful.
I’ve always enjoyed shopping and loved fashion, but my interest as an entrepreneur was definitely more about the opportunities I saw to change the future of retail. My sister was a buyer in New York, and she knew my body and my style, and she could find me things I loved. I thought, What if everybody had access to this kind of experience? There was innovation [in retail] around getting things to people cheapest and fastest. But when you’re going on a date next Friday, you’re looking for the thing that looks best and makes you feel the most confident.
I started testing the concept [my second year at Harvard]. I had a credit card with a $6,000 limit. I would buy clothes at boutiques around Boston, then bring them to people’s houses, mostly friends of friends. I intentionally sought out people outside of HBS to create a more diverse sample group. I’d watch them try on the clothes, ask them questions, and have them fill out a survey, gathering as much data as I could. I focused on their feedback on the clothes — the fit, the colors, the textures, their style preference. I sold clothes at cost, so I wasn’t making any money, but I was gathering critical information I would use to pitch the business to investors. Any time my credit card hit $6,000 or I was coming up on a 14- or 30-day return, I’d return whatever clothes I didn’t sell back to the boutiques.
By collecting this data over the course of several months, I was able to understand how Stitch Fix would work. Can you style for somebody without knowing them really well? Are people going to be comfortable seeing brands they’re not familiar with? How many items are people comfortable trying on at once? I was in no way a data scientist, but I was able to gather enough data to [feel confident] that this business model would work. It was also really important for me to prove to myself that I could follow through on this and that it was something I wanted to dedicate my life to.
The next step was trying to get funding. In January 2011, I stacked my classes in one-half of the week so I could spend a lot of time in California. I’d go to coffee with Sukhinder, and she introduced me to investors and potential advisors. I was [also] proactive about building my own network. I stayed with friends and used student loans to finance the travel. On Valentine’s Day 2011, I received a term sheet [an intention to invest] from Steve Anderson, who was the first to invest in Instagram and one of the first to invest in Twitter. He invested $750,000, which is what I used to start the business.
I launched in April 2011, shipping fixes out of my apartment in Cambridge. I bought inventory just like any other retailer — buying at wholesale and selling at retail. I went to trade shows and started to build relationships with brands. I started charging clients a $20 styling fee. My first 29 clients were friends and family; the next 35 were friends and family; the next 110 were [their] friends and family. For the first two years, we built organically — people telling other people, writing blogs about it, and sharing it on social media.
I graduated in May and moved the company to a 1,100-square-foot office in San Francisco in June. San Francisco is one of the best places to attract both retail and tech talent. We had a team of about five in the beginning who I hired off Craigslist. Everyone played a role in early marketing, our blog, social media, customer service, and operations.
Fundamentally what we’re offering is personalization. The stylists look at the data we gather from the surveys clients fill out and any feedback they’ve given on previous fixes, and then they compare it to data from clients who are similar in size and style. Our data can say, for example, this client has a 50 percent chance of keeping this denim. It helps stylists make informed decisions, but ultimately the stylist retains her creative vision. She has a better understanding of what her clients will like than an algorithm.
IT’S NOT JUST ABOUT CONVENIENCE. THEY’RE HAPPIER IN THEIR CLOTHES.
By the end of 2012, I couldn’t raise money to grow the business. I went out and demonstrated our success, showed that we had tens of thousands of customers and a waitlist, and we just needed more capital. It was a good story. But investors thought it was too small. They didn’t like that we bought inventory [directly from brands] rather than buying on consignment. [Any clothing that didn’t sell was a business loss.] I think because [the majority of] venture investors are men, there weren’t a lot of people who felt passionate about what we were doing.
At the start of 2013, we were eight weeks away from not making payroll. I knew that if the business didn’t work, I could move on. I had signed myself up for that. I was in my late 20s in a rental apartment. I didn’t care about eating cheap food for a while. But we had [about] 20 employees at this point. There were people on the team with mortgages and kids, who were sacrificing so much. It was really hard to not feel the weight of people’s families on your shoulders when you’re struggling to raise money.
Steve Anderson, our initial investor who sits on the board [and is , therefore privy to the company’s financials], came to me and said, “I don’t want you to worry.” He invested enough to keep us [growing]. As we continued to grow, more investors came on. In five years, we’ve grown to more than 4,000 employees and we’re shipping out millions of fixes.
When the business really works is when we hear clients say, “I’ve never had jeans that fit me until I got a pair from Stitch Fix.” We’ll also hear, “I would never have tried this dress on in a store.” It’s not just about convenience. They’re happier in their clothes. We’re so close to the customer. We get to hear how somebody met their husband for the first time, or how a scarf we sold them helped a friend who had cancer.
I have had one client for three years now and have styled her through two pregnancies. I feel like I know her very well. I have had another client for almost two years who wanted something special for her husband’s return home after serving in the Marines. She let me know that she loved the dresses that I chose for her to welcome him home. Being able to be so connected to the impact we have on our clients’ lives provides endless motivation.
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