The Customer is the Company

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Shortly after founding the company, Nickell and DeHart began awarding small cash prizes to the artists whose T-shirts were selected. Initially the prizes were $100 per winning design, but they gradually climbed to $2,500, plus reprint fees. But the appeal of Threadless to artists has never had much to do with getting paid. "It wasn't so much the money," says artist Glenn Jones, who won $150 in a contest in 2004, at age 29. "It was how cool it was to get your shirts printed." Young illustrators had few outlets in which to display their art, and within a few years of the launch, Threadless had acquired a sort of American Idol cachet. It was where unknown designers went to make their names.

In addition to attracting a lot of talent, the contest format encouraged artists to tell their less artistic friends about the site. Designers labor mightily on their submissions; they spend weeks tinkering with their work and soliciting advice from other members. Then they post links to their submissions on their websites, blogs, and MySpace pages, asking their friends to click, vote, and, the artists hope, buy. (Threadless helps with this, sending the artists digital submission kits that include HTML code and graphics to help them create professional-looking advertisements for their designs.) "Threadless was a huge word-of-mouth thing," says Tom Burns, a 30-year-old freelance designer in Murfreesboro, Tennessee, who discovered Threadless through a mention on a design forum in late 2004. When he submitted his first design, he told all his friends and posted links on every design forum he frequented. "I spread the word as much as I could," says Burns, who eventually won for a design called Spaghetti Western.

Threadless users are not required to join the social network or vote in order to buy shirts, but many users have offered their opinions on thousands of designs. There's something enjoyable and empowering about playing critic in a never-ending gallery of pop art. "Participation on Threadless is not just about voting for designs you really want to buy," says Frank Piller, a management professor at Germany's Aachen University and a researcher at MIT. "It's an exploration of new designs, and it's fun." For a 2006 paper he published in the Sloan Management Review, Piller surveyed Threadless customers and found that only 5 percent were buying shirts without first voting on designs. "Almost no one was simply consuming," he says. "They were all participating."

This rabid engagement propelled the company through four years of phenomenal growth, beginning around 2004. The user base grew tenfold, from 70,000 members at the end of 2004 to more than 700,000 today. Sales in 2006 hit $18 million -- with profits of roughly $6 million. In 2007, growth continued at more than 200 percent, with similar margins. Though Nickell refuses to disclose the exact revenue number -- perhaps because he now counts Insight Venture Partners, a New York venture capital firm, as a minority shareholder -- it seems fair to assume that Threadless sold more than $30 million in T-shirts last year.

Ask Nickell what he makes of his company's whirlwind success, and he will respond rather sheepishly. "I think of it as common sense," he says. "Why wouldn't you want to make the products that people want you to make?" Indeed, the idea that the users of products are often best equipped to innovate is something many entrepreneurs know intuitively. And it is supported by a growing body of research. A study published last year in the Strategic Entrepreneurship Journal suggested that the vast majority of companies are founded by "user-entrepreneurs" -- people who went into business to improve a product they used. Meanwhile, studies by von Hippel and others show that in industries as diverse as scientific instruments and snowboard equipment, more than half the innovations generally come from users, not from research labs.

Some major corporations are beginning to experiment with these ideas. Pitney Bowes is building an online social network for direct marketers who use its mail machines, and Ford now allows drivers of its Focus sedan to add third-party hardware and software to their vehicles' navigation and entertainment systems. But most companies still prefer what von Hippel calls the "find-a-need-and-fill-it" paradigm -- which involves market research, focus groups, testing, reworking, and retesting. Not only is this method extremely costly, but it fails to capitalize on a company's most dedicated customers -- who often are already improving existing products to fit their needs. Think of the hacker who tweaks his iPhone to allow it to run Skype, the mountain biker who builds an improved chain guard, the teenage girl who cuts the collar off her Gap T-shirt.

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Max Chafkin

Senior writer Max Chafkin has profiled companies such as Yelp, Zappos, Twitter, Threadless, and Tesla for the magazine. He lives in Brooklyn, New York.

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