Innovation and Revolution in Established Industries
- Posted by Jeff Carter
- on February 15th, 2013
Today, Under Armour ($UA) opens its first 8000 square foot retail store in Baltimore, MD. The company started in 1995. If you think back to 1995, there were three dominant brands in sports apparel. Nike ($NKE), Adidas, Converse (which was a dying brand at the time). Nike ruled the world. That was the height of Michael Jordan and Tiger Woods. Bibs for babies had the Nike swoosh on them. Ubiquitous.
Under Armour is a great startup story for entrepreneurs that have deep industry knowledge and can solve problems creatively.
At the time, it was improbable to think that an upstart competitor could come in and take market share from a seemingly impenetrable brand. After all, Nike was innovative and cutting edge.
What it took was someone that had deep knowledge of a problem.
It all started in 1995 when Kevin Plank, then the special teams captain on the University of Maryland football team, noticed that the cotton T-shirts he and his teammates wore underneath their pads were always soaked and heavy with sweat.
If you have played football and practiced in the heat, you are familiar with the chafing that came with a cotton shirt underneath shoulder pads. Distance runners know about chafing as well. For years they have used materials other than cotton for shirts and shorts. Mr. Plank decided to solve that problem.
The market for shirts under football pads is large. But is it large enough to take the risk to start a business? Plank could have tried to sell his idea to a company like Nike and walk away. Many times, that is the best decision. There is a very fine line between the two and I run into companies like this all the time. Should they try and build a business with their idea-or should they simply sell it to a larger competitor and get a fee or royalty?
Plank decided to build a business.
Plank built his first prototype, which he then gave to his Maryland teammates and friends who’d gone on to play in the NFL. With their feedback, he went back to work, quickly emerging with a revolutionary new T-shirt built from microfibers that wicked moisture and kept athletes cool, dry, and light.
Then, he made the ultimate sacrifice. It’s called, “skin in the game”.
With his design nearly perfect, Plank needed funds to launch his apparel line, so he maxed out his credit cards to the tune of $40,000 and set up a company in his grandmother’s basement in Washington, DC.
Plank had the network to at least get his foot in the door to try and get sales. His first sale was to Georgia Tech, but we don’t know how many schools he pitched before he achieved his first sale. It gave him a reference point, and that first sale helps you get the next sale.
Then in 1999, he got a little lucky. His gear was featured in a movie. We don’t know if Plank had a network into the movie industry, or how someone made the introduction to get him a chance to get his product placement, but it happened, and it helped propel his company.
As the company grew, it evolved. Instead of pigeon holing itself into football, it branched out into “clothing”. That’s a key component of why the company got so big so fast and was able to take market share from established competitors. Once UA had established a beach head in a relatively small slice of the market-it was able to grow. Amazon ($AMZN) did this with books.
Under Armour is a classic American success story. Someone sees a problem and solves it. They take a lot of risk with no guarantee it’s going to work out. They are successful, and make a dent in industry. Of course, they could have failed. They would have had to accept the consequences of that failure. Failure would have meant $40,000 of expensive credit card debt and all the bad things that come with that.
If you want to be successful, you have to be willing to assume calculated risks.
With the cost of technology dropping, I think there is a lot of potential for people with deep industry knowledge to use technology to solve problems that could revolutionize staid industries. If you are an employee in a very established industry, start looking around for problems to solve. Your solution might lead to a billion dollar company.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
Jeffrey Carter is an angel investor and independent trader. He specializes in turning concepts into profits. He co-founded Hyde Park Angels one of the most active angel groups in the United States in April of 2007. He previously served on the Chicago Mercantile Exchange Board of Directors. He has done market commentary for (More...)