Thirteen months ago, Michael Lewis, founder and CEO of Forever Collectibles, didn't even know that ugly sweaters were a thing. A concept. A fun, dorky theme for holiday parties. 

But last Christmas, he noticed that his predominantly young staff (average age: 25) were wearing them to the office. Frequently. And passionately. One of the young staffers suggested that the company--which makes sports-related baubles, officially licensed by all the major college and pro sports associations--should start selling sports-themed ugly sweaters.

One year later, the suggestion has come to life, to the tune of $10 million in ugly sweater sales. 

It's not the first time Somerset, New Jersey-based Forever Collectibles has pivoted in response to a trend. Since its inception in 1999, the $100 million company has capitalized on the fashionability of items like bobbleheads and Livestrong bracelets, moving swiftly to make and sell whatever trinkets sports fans happen to crave.

In fact, in founding the company, Lewis designed it to be a quick-twitch, first responder to fads and fashions. And yet the company's overwhelming success with ugly sweaters almost didn't happen. Ironically, the most resistant employee was Lewis himself.

Though he'd created the company for the express purpose of sprinting to market with trendy products, ugly sweaters were the rare idea which Lewis had the strong urge to veto. Here's the story behind his surprising initial resistance--and how his employees persuaded him to overcome it. 

Before things got "ugly"

In July 2001, when Forever Collectibles was a two-year-old startup, Lewis and five of his employees traveled to Seattle for the Major League Baseball All-Star Game. Sure, they were fans, but they were there on business. The goal was to set up a table to sell plush teddy bears ($10 each), with the bears decked out in officially licensed MLB gear.

"At one point, I look across the way at another guy's booth," recalls Lewis, 60. "And I see there's a long line. It's like 75 people long. I think, 'What the [eff] is that? That's unbelievable.'"

As it turned out, the other vendor was peddling MLB-player bobblehead dolls for $25 each. "I bought one and went right to China," he says. China, of course, was where Lewis could meet with his manufacturing partners and learn how much it would cost Forever Collectibles to make its own bobbleheads.

It was then that Lewis had an entrepreneurial epiphany, one he describes through the well-known metaphor of the buggy whip. If you haven't heard of this particular metaphor, you've certainly heard of the idea behind it: that you need to define your business model not in terms of your products per se, but in terms of your capabilities to solve ongoing problems for customers.

It's a notion best articulated by Theodore Levitt in a legendary 1960 Harvard Business Review article:

The railroads are in trouble today not because that need was filled by others (cars, trucks, airplanes, and even telephones) but because it was not filled by the railroads themselves. They let others take customers away from them because they assumed themselves to be in the railroad business rather than in the transportation business. The reason they defined their industry incorrectly was that they were railroad oriented instead of transportation oriented; they were product oriented instead of customer oriented....

The buggy whip metaphor is a variation on this theme. In the horse-and-buggy era, the makers of buggy whips were on top of the world. Then automobiles came along. And buggy whip makers, as the arguably apocryphal story goes, went under. "What was their mistake?" asks Lewis rhetorically. "They didn't understand what business they were in."

At the All-Star Game in Seattle, Lewis, who never went to business school, realized Forever Collectibles was not necessarily in the business of making plush bears. "We're in the business," he says, "of making emotionally connected products for people tied to sports." 

It was a transformative realization for Lewis, who'd come out of retirement to start the company "as a kind of one-off experiment." Prior to founding Forever Collectibles, he'd worked as an executive at Puma and Adidas. In 1989 he founded Apex, which made officially licensed NFL gear in the early 1990s. "It was doing so well, and this motivated Nike and Reebok to come into the NFL business," Lewis says. "Small companies like Apex and Starter got squeezed out."

So when he started Forever Collectibles, Lewis already had it in mind to do something different: something where the business model would allow him to act like a niche-seeking missile, nimbly probing the white space where there'd be no competitive overlaps with "aircraft carrier"-size entities like Nike and Reebok. "I'm a big believer in, You learn by the doing, and you don't cross your own toe line and don't repeat mistakes or replicate what you did before," he says. 

From his experiences with Adidas, Puma, and Apex, Lewis had relationships and credibility with the licensing decision-makers in college and pro sports. He also knew how to get something spec'd out and made in China. Yet he didn't want to repeat what he'd already done. "I told myself, 'We're not going to bring in professionals or hire experienced people. Instead, we're going to train them all ourselves.'"

His knowledge of sports licensing told him that license builders like to create diverse product menus. As long as Forever Collectibles could speedily deliver products that no one else was creating--and those products continued to sell--the licensers would welcome the company's new baubles, be they bears, bobbleheads, or something else.

"Our job is to create a space in the licenser's mind where we are special and can bring unique things to the party," he says. "We offer consistent innovation and speed to market. No one is faster than us with a new trend."

Lewis believes the reason for that speed is his exceptionally young team of 180 employees, of whom only four are over the age of 40. For most of the staff, this is their first job. He compares the situation to watching an 8-year-old take on a challenging ski slope, as opposed to a 40-year-old. The 8-year-old "goes down with no fear," he says. "The 40-year-old is worried he's going to break his knees or fall on his head."

In practical terms, the staff's youth is more flexible with high-urgency work assignments. Most of the Forever Collectibles team is single. If they need to work till 11 p.m. four nights in a row, or fly to China on short notice to get something spec'd and made, they can do it. 

The transition from plush bears to bobbleheads was the first test on Lewis's business model. Since then, there have been many others. In 2005, when Lance Armstrong Livestrong bands were all the rage, Forever Collectibles moved quickly to make similar bands emblemed for pro and college sports teams, ultimately selling $20 million worth.

In 2010, when shaped rubber-band bracelets were all the rage, Forever Collectibles again moved quickly, shipping $60 million worth in 90 days. "We were not in that business at all," says Lewis. "We had no licenses, no infrastructure, we'd never made a shaped rubber band. But we just layered it on. When something comes along that catches the imagination, our people just go out and do it."

Which brings us to Lewis's surprising initial resistance to ugly sweaters. What was it about sweaters, in particular, that caused Lewis to second-guess the boldness with which he usually embraced new ideas? 

For one thing, it was an apparel product. Lewis's background was in apparel. He knew, first and foremost, that the sports associations already had relationships with apparel licensees. While none of them made ugly sweaters, there was still a concern, on Lewis's part, that apparel was the last thing his licensing partners needed from his company. He wasn't even sure his licensers would allow him to do it. 

After all, the aircraft carriers were perfectly capable of making apparel. Moreover, making the ugly sweaters was one thing. Sustaining it, evolving it, and scaling it--especially against potentially large competition--was quite another. 

Then there was the inherent design challenge of the product. An ugly sweater has to be...ugly. Yet the pro and college sports associations have a vested interest in the iconic logos of their teams. The sweater would have to be ugly enough to qualify as ugly, yet still something of a beautiful product that could honorably represent the valuable franchise brands. 

Lewis was also concerned about the ramifications of a product flop. So much of Forever Collectibles' competitive advantage stems from its ability to make money for pro and college licensing offices. The last thing Lewis would want is for the licensers to become skeptical about his company's ability to deliver sales on a new product. A flop had the potential to hurt Forever Collectibles' reputation with its results-oriented partners. 

Despite Lewis's resistance, his employees persuaded him to refrain from a final judgment until they drew up some sketches of the sweaters--and sent them to China so the factory could create a sample. 

Less than 48 hours later, a sample sweater was in Lewis's hands. The sample changed everything. "Now I know," he recalls. "I can just tell, from my instincts and reactions, that we have a winner. And it flips all my concerns and fears. I start to think about execution and strategy. I'm carrying the flag up San Juan Hill, and I'm the No. 1 pied piper in our propaganda machine."

Soon there were more samples. Lewis's instincts proved correct: The licensers, too, believed the product would be a winner, once they saw the samples. 

As for his concerns about scaling, Lewis took a contrarian approach: Rather than treating the ugly sweaters as high-volume commodities, he would brand them as collector's items, with the supply intentionally limited. He was inspired by Porsche's strategy for its Panamera Exclusive Series, creating only 100 vehicles worldwide. Specifically, he wanted to create a product through which consumers could feel like they were gaining membership in a special club. 

Lewis decided the company would make only 300,000 ugly sweaters, a number he admits is somewhat arbitrary. "I tried to find a number that on the one hand meets market expectations, but does not saturate or overflow the market, to the point of devaluing the product," he says. 

If anything, the sweaters have actually increased in value. In theory, the sweaters are supposed to retail for $59.99. In reality, you'll find some selling for as high as $159.99. "I've never seen this before," says Lewis. "Our medium [sizes] are in such short supply that they're getting $120 to $180 for a $60 sweater."

The experience is likely to influence Lewis, going forward. "Limiting what you make and controlling quantities is the future," he says. "It makes the products more valuable, and it makes your partners more profitable, and it increases the value of the brand. This is as clear as the nose on my face. This concept of no longer mass producing is coming on like a tidal wave."

And to think such an influential, lucrative idea almost got stopped dead in its tracks by the entrepreneur who is now its chief evangelist.

It speaks to the power of letting your employees change your mind. Even if you're the most experienced person in the building. 

Published on: Dec 18, 2014