Why Stitch Fix CEO Katrina Lake turned down a multimillion-dollar offer

Stitch Fix CEO Katrina Lake has bet on herself since the beginning.

Why Stitch Fix CEO Katrina Lake turned down a multimillion-dollar offer
Getty Images, ABC News Photo Illustration
January 20, 2020, 4:11 AM

Stitch Fix founder and CEO Katrina Lake made history in 2017 when she became the youngest female founder to take a company public at just 34.

Founded in 2011, the online personal styling service became profitable within three years and now serves more than 3 million clients, generating over $1.5 billion in sales.

"The original thesis was marrying humans and data and analytics to build this personalized shopping experience," Lake told ABC News' Rebecca Jarvis on "No Limits with Rebecca Jarvis."

Her vision was to transform the way that people shop while democratizing a personal styling experience.

Users fill out a "Style Profile," which a personal stylist uses to handpick items fitting a customer's tastes, needs and budget. Items are shipped monthly to customers, who have three days to decide which pieces they want to keep. A $20 styling fee is applied as a credit toward any items the customer wants to buy.

"We've sold about $5 billion of clothes, all sight unseen. And that's kind of an amazing thing -- that no one is clicking on something, adding it to their cart and buying ... 100 percent of that is recommended to our clients." Lake said on the podcast.

Equally as crucial to the personal stylists of the company are the more than 100 data scientists developing algorithms to better understand customers. A new feature the company offers is called "Shop Your Looks," which uses machine learning to provide customers with a selection of 30 to 40 items based on things they've decided to purchase.

While Stitch Fix joins myriad other companies looking to transform online shopping, including Rent the Runway, Instagram and Amazon, Lake said data-driven features like "Shop Your Looks" help differentiate her company.

"Our focus on personalization, our focus on apparel, our focus on recommendations at the core of what we do is what's going to differentiate us," she said.

The success of the company is undeniable. In its financial results for the first quarter of 2020 (which ended Nov. 2, 2019 as per the company's financial results report), Stitch Fix increased active clients by 17% to 3.4 million and net revenue by 21% to $444.8 million from the previous year. When Lake thinks about the worst advice she never took, to sell her company in the first year, this type of growth reaffirms her decision to decline the offer.

"We'd raised less than a million dollars, and we had a tens-of-millions-of-dollars offer of a company that wanted to acquire us, and I mean, it had to give us pause," Lake told Jarvis.

Lake was in her late 20s, living paycheck to paycheck, and the offer would have made her a millionaire only a year into her first company. A lawyer she was working with recommending taking it.

"He's like, 'This is so lucky. This is so lucky.' And I'm like, 'Well, do I think that I'm lucky or do I think that I'm actually good at this? And if I'm actually good at this, then I should actually double down on myself and invest in myself,'" Lake told Jarvis.

She turned it down.

"Ultimately, it actually did end up feeling like an easy decision to make -- a feeling like I believe in this. I believe in myself. I believe in the company, and this is the right thing," Lake continued.

Today, Stitch Fix is valued at more than $2 billion.

Hear more from Katrina Lake on episode #144 of the "No Limits with Rebecca Jarvis" podcast.