When Marc Katz started his CustomInk T-shirt company in 2000, he saved money by sleeping on an air mattress in a friend’s basement in McLean.
Well, Katz and CustomInk have left the basement.
The company is full of cash, thanks to a $40 million investment last November from local tech moguls Ted Leonsis and Steve Case — the men behind AOL’s rocket-like ascent in the 1990s, only to see it later falter — who like the company’s growth prospects.
Not too surprising: CustomInk expects to gross more than $200 million this year. It recently surpassed 1,000 employees. It has facilities in Nevada, southwest Virginia and Texas. It runs national television commercials. It just moved to bigger officers in Fairfax.
Last month, CustomInk had its first $1 million-plus day of T-shirt orders.
“If you told me 14 years ago that we would do $1 million in a day, I would have been happy,” Katz said. “It’s a lot of T-shirts.”
It’s a lot of money.
Is CustomInk the next Under Armour?
Probably not, but it’s on a roll and growing fast. The question may be whether it’s growing too fast. Some observers wonder if CustomInk’s scale-up risks a flameout on the order of another Case-backed company, District-based LivingSocial — the daily deals business and one-time high-flyer that has returned to terra firma after its business model proved less potent than first thought.
“The key is scale,” said Peter Krasilovsky, who follows online merchandise companies for BIA/Kelsey in Chantilly. “If they rev up too fast, they may spend too much on resources that they won’t need later on or that they can’t integrate into their operations. Other D.C. companies like LivingSocial have foundered on hyper-growth and high expectations.”
Katz is having none of that. He acknowledges he is chasing market share, but he said the company is not ignoring the bottom line in the process. CustomInk has been cash flow positive for 10 years.
The company is pushing $200 million in revenue in what it believes is a multibillion dollar T-shirt market.
CustomInk allows customers to design T-shirts for family reunions, small businesses, religious groups or student associations online. Picture 50 T-shirts emblazoned with “The Smith Family Reunion” or 150 baseball caps marking the local 5K fundraiser.
In recent years, it has expanded its products beyond T-shirts into athletic gear, uniforms, aprons, backpacks, coolers, baby clothing, umbrellas, mouse pads, visors and pens, to name a few.
The products are part of a business that is really not about selling T-shirts and knickknacks, Katz said.
“We did a study. Nine out of 10 Americans say they have at least one T-shirt that they can’t part with for sentimental reasons. And most people have a dozen of them,” he said.
Katz began to see the company as a creator of a memories, something with sentimental value — heirlooms, if you will — that customers saved and cherished for years.
Think of that memorable Springsteen concert. Or the cherished moment from 1996 Atlanta Olympics. The marathon you ran 25 years ago. A softball team. A campaign organization.
To expand its market for memories, CustomInk last fall began pushing two new businesses — Booster and Pear — to build on the huge customer base the company has established over the last decade.
Booster, which is located in Boston, helps people use CustomInk as a vehicle for contributing to their favorite cause.
“You create your T-shirt, put it up for sale, tell your story and people can come and buy your shirt,” Katz said.
Katz likes Booster’s chances, even though it ate lots of cash getting started. Its revenue is running at rate of more than $1 million a month.
Pear, a play on pair, helps grass-roots organizers raise money in return for raising social network awareness for sponsors from Chips Ahoy to Shutterfly to Ritz Bits. Pear has been more difficult to scale, but its revenue now exceeds a rate of $1 million a year.
The two initiatives are part of something CustomInk calls community commerce. There’s even a slogan – T-Shirts Unite.
The principle is built on a simple business concept taught in any graduate business school: repeat business. Any company that sells anything works on the premise that it is easier, and less expensive, to sell more to existing customers than to find new ones.
Katz realized that if he could create a long-term relationship with organizers, he could solicit repeat business. Booster and Pear are designed to give previous customers new reasons to buy T-shirts.
“It’s not so much about the shirts, but the groups and communities that the shirts are for,” he said. “There’s a different dynamic when a group of people is acting as a community and transacting for community purposes than a consumer acting for consumption purposes.”
And when the group is transacting for community purposes, they may tend to purchase shirts in greater numbers. CustomInk has built a database of 1 million group organizers, with 30 million to 40 million members behind them.
“It’s quite a bit of reach,” Katz said. “We see lots of opportunities to create value with that.”
Just click on the Pearup.com Website, and those opportunities come alive. Across the top are the names of several consumer brands: Wheat Thins, Verizon, EA Sports, Mike’s Hard Lemonade, Chips Ahoy, Shutterfly, Gatorade and Coors.
Take Ritz Bits — a smaller version of the iconic Ritz cracker. Ritz Bits helps raise money for children’s soccer teams by offering up to $1,000 off custom-sponsored Ritz Bits T-shirts if participants can raise the crackers’ online awareness through social networks.
“It’s high touch, really intimate, meaningful engagement, which marketers really value,” said Katz. “But it’s hard to scale. We see lots of opportunities to create value with that.”
Katz always had an entrepreneurial bent since growing up near Philadelphia. He ran his own tutoring business during college and summers.
He is a math whiz who, after graduating from Harvard University in 1998 with a physics degree, went to work on Wall Street as a telecom analyst. But he longed to be his own boss and create a company.
He and a couple of former classmates came up with the idea of CustomInk. His father told him “it was the best business plan he ever read for a bad business,” but gave him an initial investment to get the company started. Friends and family supplied the rest.
Katz started CustomInk in March 2000 in Northern Virginia, which was then a hotbed of technology, with AOL leading the way.
“It seemed like a good place to establish ourselves,” Katz said.
After a few misfires, the company earned $25,000 the next January, and leaders knew they were on to something.
Walk into CustomInk’s three floors of bright, airy offices in the Mosaic District in Fairfax County, and you feel a company that is growing. It’s a vibe reminiscent of LivingSocial’s halcyon days. A big chunk of CustomInk’s 72,000 square feet is empty, waiting for more desks and the yet-to-be-hired employees who will join as the revenue grows.
The company’s orange Octopus logo — named Inky — is everywhere. CustomInk employees even call themselves “Inkers,” and the Inky’s orange clearly dominates the headquarters, where 400 or so go about their business.
Data is shown on the flat screens that hang on the walls, testament to Katz-the-math-whiz’s love for quantification. The data tells the story for everything.
One screen shows the year-over-year revenue. Still another shows that 89,099 shirts were sold in the past 24 hours, representing $955,129 in revenue. Sales in the past hour were $99,220. A color-coded map of the U.S. shows which states have the greatest sales. Another shows the leader in sales volume for the past four weeks sold $197,352.86 in products. Katz, as always, places his see-through offices toward the elevator, where everyone can find him.
He likes the role of benevolent boss, although CustomInk is known for its rigorous and highly selective hiring process. Thursday is free-lunch day. The company also provides a free snack each day, from Robek’s smoothies to popsicles and dips.
Katz is proud of the health care and 401(k) match, which he thinks is not only good management, but also good business because it attracts and retains high quality employees, many of whom are in their 20s.
Katz said he is still the biggest individual shareholder in the company, but acknowledges taking “a bit of value out” of the company after receiving the $40 million from Case, Leonsis and Donn Davis, the three principals behind Revolution Growth.
Leonsis took a seat on the CustomInk board after the investment, and he and Katz talk weekly.
“Custom Ink is a company that has planned for rapid growth and scale, and has built infrastructure and added personnel in front of its growth to assure itself of world-class service to its customers,” Leonsis said. “Our investment was leveraged to make sure the growth was well planned, and we never wavered from customer satisfaction, and to date, they are right on plan.”
Katz said he has the long view. The company hasn’t even tapped the international market, although he quips “people have torsos overseas, we have noticed.” One thing at a time. He doesn’t have an exit strategy, nor does he feel he has to decide now whether he wants to be running and owning CustomInk in 20 years.
He just knows he wants to get bigger.
“I’m building this thing and seeing where it takes us,” he said.