20VC Stitch Fix Founder Katrina Lake on Growth vs Profitability, Her Biggest Lessons From Working with Bill Gurley at Benchmark and The Importance of Mental Flexibility as a Leader

Harry Stebbings, host of "20 Minutes VC," interviews Katrina Lake, the founder and CEO of Stitch Fix, a personalized shopping service that has revolutionized retail apparel with data-driven personal styling. Lake shares her journey from having no entrepreneurial background to founding Stitch Fix, which achieved a $2 billion IPO in just six years and was cash flow positive after three. Despite raising only $42 million in venture capital, she navigated the company to monumental success. Lake also discusses the importance of representation in Silicon Valley, the challenges and learning experiences of being a public company CEO, and the value of board members who offer support and challenge thinking. She emphasizes the need for inclusive environments and how having children has prioritized her focus on company culture and life balance. Looking ahead, Lake envisions further innovation and impact in the apparel industry, with a focus on sustainability and diversity, equity, and inclusion.

• Katrina Lake is the founder and CEO of Stitch Fix, a multibillion-dollar public company.
• Stitch Fix combines data, science, technology, and personal stylists to tailor the shopping experience for individual consumers.
• Prior to their 2017 IPO, Stitch Fix raised $42 million in venture funding from notable investors.
• Katrina took Stitch Fix from its founding to a $2 billion IPO in six years, achieving cash flow positivity in three years.
• She serves on the boards of Grubhub and Glossier.

"I'm thrilled to be joined today by Katrina Lake, founder and CEO Stitch Fix, a multibillion dollar public company which has brought an entirely new model to retail apparel by combining data, science, technology and personal stylists to create a unique shopping experience really tailored to the individual consumer."

The quote introduces Katrina Lake and her company, Stitch Fix, highlighting the innovative approach to retail apparel that has significantly impacted the industry.

• Katrina was not a born entrepreneur but became passionate about solving the problem of choice in fashion and apparel.
• She observed that both physical stores and e-commerce were failing to adequately help consumers find the best products for them.
• After exploring the industry, she concluded that starting her own company was the best way to be part of the future she envisioned for apparel shopping.
• Ten years into Stitch Fix, Katrina believes the problem is still largely unsolved and finds the challenge intellectually stimulating.

"I became really passionate about the face of really understanding the problem of there is so much fashion out there, there is so much apparel, there are so many brilliant designers, and yet the process of figuring out what are the best things for me is so broken."

Katrina Lake explains her motivation for starting Stitch Fix, which was driven by a passion to solve the overwhelming choice problem in the fashion industry.

• Katrina Lake's early jobs, including working at Banana Republic and as a lifeguard, taught her valuable lessons.
• She enjoyed the people she worked with and realized the importance of making work rewarding and enjoyable.
• Her varied job experiences gave her an appreciation for the hard work in business and the impact of decisions on people's work.

"I mean, there are so many things. I mean, one thing was just like both in those jobs in the banana Republic job and in the lifeguard job, so much of what I loved about the job was the people that I worked with."

Katrina reflects on her early career experiences, emphasizing the significance of the people aspect in her jobs, which influenced her approach to creating a positive work culture.

• Katrina values the humility of frontline work and considers it crucial for leadership to understand the business impact.
• At Stitch Fix, all full-time employees, regardless of role, are taught to style fixes to maintain a connection with the core service.
• Katrina personally enjoys styling fixes and spending time in warehouses to stay connected to the company's operations.

"I think just like having all of the different jobs really gives you a deep appreciation of the hard work that goes into business and also the kind of extent to which decisions have an impact on people and work."

The quote highlights Katrina's belief in the importance of understanding and valuing the work done at every level of the company, which she sees as critical for effective leadership.

• Katrina acknowledges the inevitable changes and turnover in a growing business but emphasizes the importance of having a supportive team.
• She enjoys the intellectual challenge of each stage of business growth and believes that some people can scale with the company.
• Part of her responsibility is ensuring the team is aligned with the company's needs and that employees are in roles where they can succeed.
• Sometimes letting someone go is the most empathetic action if they cannot be successful in the company's current stage.

"I think there definitely are people who can and do want to scale. And I do think part of my responsibility is to always make sure that I have the right team in place and the team and to have that match of like, this is what the company needs and this is what people have to offer."

Katrina discusses the need for leaders to ensure that their team members are capable of scaling with the company and are in positions where they can thrive, acknowledging that this often involves difficult decisions.## Vision Implementation Progress

• Katrina Lake states that Stitch Fix's progress in implementing its vision is likely less than 10%.
• The aspiration is to excel in apparel recommendations, aiming to choose clothes for people better than they can themselves.
• The challenge lies in the magnitude of the industry and the radical approach of Stitch Fix.
• Katrina highlights the excitement in solving the problem of matching people with apparel through mathematical recommendations.

"I mean, this is such a huge industry, and the way that we are approaching it is so radical." "And the idea that we can be best in the world at recommending apparel and matchmaking between people and apparel products and potentially other products as well, is massive."

The quotes emphasize the ambitious nature of Stitch Fix's vision and the innovative approach they are taking in the fashion industry. The vision involves not only selling clothes but also revolutionizing the way apparel is recommended to individuals.

• Katrina believes in the importance of having a bold, aspirational vision as a North Star for a company.
• Flexibility in the methods to achieve the vision is crucial.
• Stitch Fix's vision includes expanding their apparel recommendation capabilities into new purchasing methods.
• Katrina criticizes the stigma against changing one's mind, advocating for mental agility and humility in adapting to new information.

"I think having this North Star having this is the crazy thing that we're doing that nobody else is doing. That's such an important part of an entrepreneur and a company, really, of really having that connection to what that broad, aspirational vision is." "And so I think the vision can be kind of an eternal thing, but being able to be agnostic and flexible and have an open mind to what are all the different ways that you can achieve that vision, I think that's part of the hard part."

These quotes underline the significance of a vision in guiding a company's direction and the flexibility required in pursuing that vision. Katrina advocates for an open mindset to adapt the approach to achieve the company's goals.

• Reflecting on Stitch Fix's growth, Katrina acknowledges the benefits of being forced to be capital efficient.
• The company learned to manage inventory and customer acquisition costs effectively.
• Being capital efficient helped understand the business and its economics deeply.
• Katrina acknowledges the challenges of raising funds, especially as a female founder, and the advantages of having substantial capital.

"We really had to understand how turn our inventory in a way that we didn't have to use valuable cash to fuel our growth in the inventory front." "And so I think we're forced to be really smart about kind of how some of these things that are actually are still super important to the business."

The quotes reflect on the strategic management of inventory and customer acquisition that contributed to Stitch Fix's efficient use of capital and sustainable growth, emphasizing the importance of understanding the core aspects of the business.

• Katrina explains the mechanics of managing inventory to preserve cash.
• Stitch Fix achieved a positive cash cycle by turning inventory quickly and aligning payment terms with cash collection from customers.
• The company's viral growth and word-of-mouth referrals contributed to capital efficiency.

"But if you can actually extend your payment terms so that you're collecting cash from your customers before you're paying your vendors, then you have a cash cycle that works." "And so I think we're forced to be really smart about kind of how some of these things that are actually are still super important to the business."

These quotes detail the strategic financial management that allowed Stitch Fix to grow without relying heavily on external capital. The company's ability to manage inventory turnover and payment terms effectively created a sustainable business model.

• Katrina emphasizes the importance of growth, especially in the early stages of a business.
• The precondition for prioritizing growth is having solid unit economics and a business where the math works.
• She believes that growth is the accelerant to seize market opportunities and build momentum.

"I think especially in those early days, growth is the accelerant. Like growth is what gives you momentum." "And most are looking at market opportunities that are huge. They're in the billions of dollars."

The quotes highlight Katrina's perspective on the importance of growth for a startup, provided the business has a healthy foundation with sound unit economics. Growth is seen as a key driver for capturing significant market opportunities.

• Katrina discusses the importance of understanding and improving the lifetime value of a customer.
• She suggests that the necessity of payback on the first order depends on the industry and consumer behavior.
• The focus should be on the long-term value a customer brings to the business.

"But I do think that the notion of, I do like you, I see a lot of models that are know, assuming people spend, nobody ever leaves the business and has pretty aggressive assumptions, know what people will do." "But I think at the end of the day, really focusing on what is the lifetime value of a customer and what are all the ways that you can increase and improve that. It's just the best north star."

These quotes stress the significance of concentrating on the lifetime value of customers rather than just the initial payback. Katrina points out that assumptions about customer behavior should be realistic, and businesses should aim to enhance the overall value derived from their customer base over time.## Customer Lifetime Value (LTV)

• LTV is considered a critical metric for businesses, guiding strategies for growth and customer retention.
• Companies can enhance LTV by reducing customer acquisition costs or by encouraging repeat business from customers.
• There's an emphasis on the importance of calculating LTV accurately and rationally.
• LTV is now more visible due to digital advancements, unlike in traditional brick-and-mortar settings.

"There's a lot lever that you can use to try to improve that LTV."

This quote highlights the various strategies a business can employ to increase the lifetime value of their customers, suggesting that there are multiple levers or actions that can influence this metric.

• Self-doubt and impostor syndrome are common challenges, particularly in new and high-pressure environments like joining a board.
• The root of these feelings is linked to authenticity and the creation of inclusive environments where diverse individuals can succeed.
• The tech industry's historical exclusivity has contributed to feelings of impostor syndrome.
• Addressing impostor syndrome requires systemic change to create more inclusive environments and representation.

"This notion of self doubt and impostor syndrome, just like I totally empathize with it, and at the same time, as I think about the root of it, it really is around just kind of authenticity."

Katrina Lake empathizes with the feeling of impostor syndrome and connects it to the need for authenticity in professional environments. She suggests that creating an authentic space where people can be themselves can help alleviate these feelings.

• Inclusive environments allow people to feel safe and able to express themselves without feeling judged or marginalized.
• Emphasizing authenticity and vulnerability in leadership can help in creating such environments.
• Companies should aim to add to their culture rather than just fit into it, learning from each other's differences.
• Stitch Fix talks about "culture add" versus "culture fit," indicating a value for diverse contributions and learning opportunities.

"I think being able to, I think one just really important leadership. It was the only leadership tool that I had because I didn't have all the experience and I didn't have the prior history of success."

Katrina Lake speaks to the importance of authenticity and vulnerability, especially when traditional leadership experience is lacking. She views these traits not as weaknesses but as powerful tools for building a strong, inclusive company culture.

• Vulnerability and openness about challenges are crucial, even for leaders of public companies.
• While the specifics of business results are not discussed between quarters, discussing the human aspect of leadership challenges is important.
• Leaders are increasingly seen as human and fallible, which can build trust and understanding within a company.
• The recent challenges, including the COVID-19 pandemic, racial injustices, and political turmoil, have tested leadership and highlighted the need for vulnerability and trust.

"And to be able to build that trust of people feeling like they know me as a human helps when I can't share every single detail around why we decided to make a decision."

Katrina Lake points out that being open about the human aspects of leadership helps build trust with others, which is beneficial when not all business decisions can be fully disclosed or explained.

• Effective board management involves appreciating a range of perspectives and welcoming healthy conflict.
• Boards provide valuable external perspectives and challenge company views, contributing to better decision-making.
• Board members with more experience can offer foresight and guidance on long-term strategies, such as preparing to go public.
• The board's outside perspective can be instrumental in recognizing the need for strategic roles within a company, like a people and culture leader.

"And so we were probably at a stage of company where I was, like, going public that seems like a crazy four years into the company or something, that seems like a crazy thing to be talking about now. But he was absolutely right."

Katrina Lake reflects on the advice from a board member about the company's trajectory towards going public. The board member's foresight and experience were crucial in planning for this significant transition, demonstrating the value of external perspectives in board management.

• Being a board member at other companies offers insights into board dynamics and can influence one's approach to managing their own board.
• The experience gained from serving on other boards can provide valuable lessons and different perspectives that can be applied to one's own company.
• The reciprocal relationship between being a board member and managing a board contributes to a broader understanding of corporate governance and leadership.

"And Bill was actually the one who had the foresight to see, like, okay, we are on that path."

In this quote, Katrina Lake acknowledges the foresight of a board member, Bill, who recognized the company's growth trajectory and the need to prepare for going public well in advance. This experience, along with serving on other boards, has influenced her approach to board management.## Board Management and Public Company Experience

• Katrina Lake gained significant insights from her board experiences with Grubhub and Glossier.
• Exposure to Grubhub's fluctuating stock prices helped her develop resilience and a long-term vision amidst short-term discomforts.
• At Glossier, she admired the brand and community strength, which inspired her for Stitch Fix.
• The experiences with both companies, despite their differences, brought valuable perspectives back to Stitch Fix.

And Grubhub, I think, was first, it was the obvious of, like, I really knew nothing about board management or managing a public company or really anything in that sphere. And so I learned so much.

Katrina acknowledges her initial lack of knowledge in board management and the learning curve she experienced at Grubhub, which was beneficial for her role at Stitch Fix.

And then Glossier is like, I've learned so much on that board, too. I mean, Emily is an incredible entrepreneur. She is a real know. I think, like some of their strengths know around this brand and community.

Katrina highlights the strengths of Glossier in brand and community, which she learned from and finds inspiring for her own company.

• Katrina values board members who are supportive and see her as a human being first.
• She appreciates the mentorship and the ability to bounce ideas off her board members.
• She finds the challenges posed by board members invaluable, as they provide opportunities for growth and perspective change.

I mean, for me, I find the board members first and foremost just supportive.

This quote emphasizes Katrina's appreciation for board members who are supportive and understand her on a personal level.

But I think that having the opportunity to have your mind changed is such an amazing thing when that happens.

Katrina expresses the value she finds in healthy challenges from board members that can lead to a change in perspective or decisions.

• Katrina reads for pleasure and to gain new perspectives.
• She does not focus much on business books but was particularly struck by "Between the World and Me" by Ta-Nehisi Coates.

And know I really read for pleasure, to be transported to another time, another person's perspective.

Katrina discusses her reading habits, emphasizing reading for pleasure and the transportive experience it provides.

• Katrina desires to see increased representation and diversity in decision-making roles within Silicon Valley.
• She believes that greater diversity is needed among those who shape companies and cultures.

Representation, without question.

Katrina identifies representation as the most critical aspect she would like to change in the Silicon Valley tech scene, highlighting the need for diversity.

• The biggest surprise for Katrina as a public company leader is learning more about her business from external opinions and challenges.
• The public nature of financials allows for a democratic process where anyone can become an expert and offer insights.

Has probably just been like, how much more I've learned about my own business.

Katrina reflects on the surprising amount of learning about her own business that came from public scrutiny and external feedback.

• Katrina feels fortunate to have had supportive angel investors.
• Sukinder Singh Cassidy was the first to commit to Stitch Fix and connected her to Steve Anderson, who became a substantial financial angel.
• Steve Anderson has provided emotional support and helped with recruiting, playing a significant role in the company's success.

Oh, I mean, I've been so lucky to have just incredibly supportive investors.

Katrina expresses gratitude for having supportive angel investors who have been crucial to Stitch Fix's success.

• Katrina disconnects from work through cooking, running, reading, and spending time with her young children.
• Her children help her stay present and detached from work concerns.

Like a two year old and a four year old do not allow you to be anything but present.

Katrina shares how her young children demand her presence, allowing her to disconnect from work and be in the moment.

• Parenthood has heightened Katrina's awareness of the importance of representation and company culture.
• It has forced her to prioritize her health and family to be effective at work and home.

It actually did have a big impact. And I'm surprised to hear myself say that.

Katrina acknowledges the significant impact that having children has had on her perspective towards work and life priorities.

• Katrina believes the next five years are an exciting time for Stitch Fix, with opportunities for innovation and expansion.
• She anticipates a broader impact in the apparel world and a greater focus on sustainability and diversity, equity, and inclusion (DEI).

I truly believe this. This is the most exciting time in the history of Stitch Fix.

Katrina expresses her optimism for the future of Stitch Fix, seeing it as a period of significant potential and growth.

• Katrina expresses appreciation for the opportunity to discuss her experiences and insights.
• She acknowledges the unique questions and the chance to share her journey with a broader audience.

You're very welcome. Thank you for having me. It's been such a pleasure.

Katrina thanks the host for the interview and reflects on the pleasure of sharing her experiences.