Lululemon: The Mindset and the Playbook for a Company in Its Scale-Up Years

Chances are I'll love any class Professor Das teaches.

What this case is about — how to scale up, how to hand a company over from the founder to professional managers — isn't something I've run into in business yet, but I definitely will one day.

It's also hugely inspiring for the business I'm running right now.

We create the possibility of greatness in people because it makes us great. Mediocrity undermines greatness.

—— Lululemon Core Value

Case SummaryMay 2008: Christine Day is about to take over as CEO of Lululemon. She had spent 20 years at Starbucks, finally running its Asia-Pacific business.Lululemon backgroundFounded in 1998, the company sells "yoga-inspired athletic apparel." In 2005 it was still a US$40 million startup with 20 stores; by 2008 it was a US$350 million public company with close to 100 stores and 3,000 employees. The board's goal: keep opening stores, push towards US$1 billion in sales, and launch e-commerce at the same time.ChallengesPoor site selection and high build-out costs for new US stores; a chaotic inventory system; weak cross-department collaboration and falling organisational efficiency. The culture requires every employee (executives included) to work 8 hours a month in a store to stay close to customers.Growth performance2007 sales of US$275 million, up 85% year on year; profit of US$31 million, up 300%; US$344 million raised in the IPO; store sales of US$1,710 per square foot, far ahead of Abercrombie & Fitch and J.Crew.Market challengesInventory shortages led to extra air-freight costs; American consumers' spending power weakened, and the share price fell from US$60 to US$31.Brand storyFounder Chip Wilson, unhappy with conventional athletic wear, designed quick-dry, breathable yoga pants and promoted them through yoga teachers acting as brand "ambassadors."The new CEO's missionExpand into new categories such as running, swimming and cycling; fix inventory, site selection and collaboration; preserve the culture and the connection with customers; avoid the fate of a "trendy brand that burns out fast."

LEADERSHIP Class Notes1. ADVICE TO Christine Day — she needs a 90 days plan!Go to StoreFrontlineCustomersThere are the secret SauseSupply ChainIssues — Can be ACTIONS — quick wins, performance gapBob's Team — Hire / Fire them Build your TeamManage expectation

Leadership is about managing 5 directions1. Managing Down2. Managing Up3. Managing Out4. Managing In5. Managing self

2. 90 days plan —— Such an important factorSolution basedVisibility for the hirerHaving the road map, otherwise fire fighting

3. A new leader needs trustThey need to get wins90 days plan need milestones —— with a 5-year plan, it's hard to say you've won a war, so the 90-day plan needs "wars you can win"Go small wins, give them a chance to win when you bring new leaders.

4. Things that you DON'T do in 90 days plan？Think about opportunity Gap, but don't solve it YETMake sure you send them for SUCCESS!

5. Two types of GAPs, do performance gap FIRST!

Performance Gapfuel the engineperformance gap is easier

Opportunity GapOpportunity gap is chased after winsDon't give your people a jump up failureDon't send them to failureThink about opportunity Gap, but don't solve it YET

6. Thinking about our own organisation 🤔 What have we "won"?What have we "won" so far, and what do we want to "win" in the next 90 days? Say it for the whole team to know

CULTURE Class Notes

if we want to a HYBRID culture what should stays what should change? (Much like Arcus42's culture right now, which is a bit of a blend.)

1. What is the methodology to think what stay what change?

The answer is Customer Satisfaction!

Anything in our business that create CUSTOMER DELIGHT (SATISFACTION) should not be touched!

2. Trust your gut, you are the guard, you are the core of your business.The first professionals will do is the mess with the core, when they come in to scale up.Do NOT mess with it yourself.if it is a successful business, your gut is rightif it is a sinking business? you may be wrongIt is does not pass your test — it is wrong.

3. TRAIN and CONTROL the process, do not let people mess with your core

Customer loyalty1. Before you open, people are already welcoming! WHY?When CD comes, she do REAL ESTATE / STORE OPENINGBefore you open, people are already welcoming! WHY?They believe that Lululemon will make the community betterThey want the service even before the company is ready to serveThey do not do AdvertisementThey want the Volume as well as the ambassadorsThe pyramid: mike customer gives image — Volume

2. If someone says, "Why would you pay three times what Nike costs for Lululemon? That's silly," the customer will answer: the fabric is better and lasts longer.When someone says your product is bad, your customers will defend you.That's the customer you want — the customer loyalty you want

How could we create this loyalty??To be honest, I still don't quite get it.

MODELDesign

👇Supply

👇 RetailStore

3. They have the courage to charge HIGH PRICEThey are not selling product but life styleSales people are not Sales, they are called educators

4. Store Managers as EntrepreneursThey allow 20% mistakesis this right or wrong?this is dangerousHow you make control? Make people not repeat again?TRAIN!!!

Experiments are good, but should not ruin your customers experiences

Transition Class Notes

1. Go through a culture alignment programHow we gonna operate as a teamleadership principlesbuilding high performance team

2. Identifying who can promote and bring as a leader.

3. Have to build a leading management team.Send them to HBS, so that business school can train them

4. Bring ALIGNMENT with the teamThis one is so important it gets the big font!They get ownershipYou dont want someone say "I told you, I knew it would not work"Spend a lot of time to bring people together! Your voice gonna be heard.BUT HOW?How to bring ALIGNMENT? ??Das said a later class will cover it……

5. Christine on working with Chip(the founder)When you have a lot of ideas, put it in the case and come back every on year to see what is the prioritymeet three times a week for at least half an hourcan be something very small or big

For the new CEO : if the founder can not get the information he wants, he goes to people he trust, who are the ones being with him for a long time.

For the founder : go to your old team? if you do so, you CUT your CEO, it is the WORST thing you can do! You got this person in, you act like you give up.The other one can also be a coachCEO can coach the founder to execution

6. Accept and assume people are smarter than you.

7. Do Less But Mean MoreAnother hugely important one — put your effort into the things that matter most!

8. You want good people? —— Then build a system that can adapt peopleYou will never find people who are like you, they could be slower or faster.

9. What delight the customer —— it is all in your gut, don't let the consultant mess with you.

10. Create situation that people are eager on Monday that they want to workBecause they love youThey love the thing the company doesLooking forward to giving you their best

11. Learning is taking risk, learning is ugly, learning is risky.give people credit if they take risk and learn!

Give the training and coaching and still maintain the high bar.

12. My Organization and I become what I measure.Measure your people on learning!

13. Trusting is so importantI do not have the experience to understand.—— admit it in front of people!Moving from ego CEO to a trusting and deligating people.

To sum up: SPCEmployee Management SystemHireTrainStrongMentoring — different from supervisionGood Performance evaluation systemCompensation - not just moneyExtIntCORE to Excellence

Quality of the service provider🟰Quality of the service provide.

then you have Customer Delight

then you have Customer Loyalty

then Revenue up Cost down

The power is in EXECUTIONyou need every part of it