You don't know Spanx...

Spanx founder Sara Blakely became the youngest self made female billionaire. Sarah was recognized as one of Time 100's most influential people in the world. Sara Blakely, the Michael Jordan of women's underwear.

This is Sara Blakely and at age 27, she took $5,000 and turned it into more than a billion. She did this by selling a new type of underwear called Spanx. But her strategy was unlike any other entrepreneur. Mark Zuckerberg owns 30% of Facebook. Elon Musk owns just 20% of Tesla. But Sarah Blakely, she owns 100% of Spanx. So what does Sarah know that Elon and Zuck don't? Most entrepreneurs in Silicon Valley raise money at some point. And once they start raising money, it becomes a self perpetuating cycle. One round leads to the next, and pretty soon even the best founders only own a fraction of their business. But Sarah discovered an alternative strategy that every entrepreneur should pay attention to. Whether or not you plan on raising money for your business. If you were to ask Sarah how she became a billionaire without ever selling a single share of her company's stock, she would probably give you a simple answer like this.

I never needed to. Spanx was profitable from the first month that I was in business. I'm of the belief system to start small, think big, and scale fast.

But clearly if it were that easy, everyone would do it. So there has to be more going on here. Sarah often gets ignored by mainstream business news precisely because she never raised venture funding. Most reporters only write stories about companies when they announce a big funding round or go public. But Spanx has just been growing quietly for two decades now. And it's too bad that more people don't focus on Sarah's story, because her initial idea for Spanx follows the exact same pattern that so many Silicon Valley investors preach. Solve a problem that you yourself have.

I started Spanx as a frustrated consumer. I just simply wanted to be able to wear white pants to a party and have nothing show underneath it. I mean, I literally took a product that existed and made a modification to it. I cut the feet out of pantyhose.

Solving a problem for yourself is core to so many great startup ideas. In fact, make something people want is the motto of Y Combinator. But lots of entrepreneurs follow this advice and don't become billionaires. Sarah clearly has a secret formula for success. So I listened to everything she's ever said publicly and boiled down her growth strategy to just three key factors. Let's go through them one at a time. When most people first come up With a startup idea, they think they've struck gold. It's common to think that the idea is the hardest part, and once you have a good idea, you need to protect it at all costs. But this is actually a complete misconception. Execution is everything in entrepreneurship, and great ideas don't matter at all if you can't make the idea a reality and then distribute it effectively. When Sarah first came up with the idea for Spanx, she kept the idea a secret for a year and even patented the design before launching the company. This flies in the face of most traditional thinking in Silicon Valley. Any investor will tell you to just go out and build something to make sure that there's a market before working on time consuming things like patents. But Sarah saw things very differently. And this is factor number one. Sarah sees patents as marketing. Legally speaking, a patent is just a government license that gives the inventor exclusive rights to a design for 20 years. It's generally a way to stop people from copying you. But Sarah has never sued anyone for copying Spanx. Instead, she focused on using the patent as a way to build trust in her consumer's mind.

I knew that I was patenting this to mostly be able to show the value and use it as a marketing tool. I was trying to really convey from a marketing standpoint. This is new, this is different.

The US patent system has become massively bloated with dozens of patents for slight variations on the same idea. And there's now a huge industry of patent trolls whose only business is just buying patents and then suing companies who might be infringing even slightly.

So he's a patent troll. Guys like him buy a ton of.

Super broad IP from failed startups at auction and then threaten litigation against accused infringers. Sarah recognized that even though the patent system wasn't working as intended anymore, it could still be used to her advantage. Spanx customers would be drawn in by the patent pending label and investigate the product more thoroughly, which would lead to purchases. At my last company, Soylent, we took the opposite approach, sharing our formulas publicly and open, sourcing our ingredients. But the overarching goal was actually the same. We were doing this for marketing reasons by branding ourselves as the one health food company that was actually completely open about how we made our products. We won over consumers who were hesitant to try Soylent for themselves. The big takeaway here is that as an entrepreneur, you need to be flexible while investigating opportunities. Even though patents may not protect you fully, the decision to patent could still have an impact on your business. The key is to understand that getting a patent is not a significant milestone for your business. Only making a great product and growing your customer base is significant. Tons of venture capitalists have told me about crazy inventors walking into their offices thinking that they had a great business just because they got a patent. There is so much more to growing a business than just thinking of an idea and filing some paperwork with the US Patent Office. But Sarah understands that completely. And that leads to her second key success factor. Once you've actually developed a product, you need to be able to sell it. And Sarah is a master of selling products. This makes sense because she has a background in sales. Before she started Spanx, she went door to door selling fax machines. And she learned a ton of valuable skills during that time. It's really common for entrepreneurs to forget about the importance of sales and marketing when they come from technology backgrounds. This was certainly the case for me when I moved to Silicon Valley. I thought that marketing was unnecessary if you had a good product and generally thought that salespeople were just paid to socialize. But the best salespeople are actually masters of human psychology. The thing about psychology is that it can be very counterintuitive at times. For example, most entrepreneurs think that the best strategy is always just to make a better product and sell it at a lower price. But that's not always the case. See, back when Sarah was selling fax machines door to door, she wasn't working for Canon, which was the most popular brand at the time. She was selling a cheaper machine called a Dex, and customers weren't really giving her the time of day. But then she discovered something incredible about the way people think about price and quality.

Then I made the price of my Dex slightly higher than the Canon, and everybody stopped in my meetings and started asking more questions and saying, why is this Dex more money than the Canon? What am I missing? And it gave me an opportunity to really sell the features. And what was so special about the DAX fax machine? And they started buying it.

This is the type of thing that you would never learn if you were just focused on your product. At a certain point, you have to go and interact with customers in order to see how they actually behave. It might surprise you. Sarah used everything she learned selling door to door to grow Spanx at the early stage. And it worked. Lots of entrepreneurs confuse sales with advertising, but they're actually two completely different things. Spanx didn't advertise at all for years, but that didn't mean that Sarah wasn't laser focused on sales. She called Department stores constantly and pitched directly to buyers, never taking no for an answer. Her product was solid, but it was really her ability to convince retailers to take a chance on Spanx that set her apart from the competition. Today, it's common for startups to raise money and instantly start spending that cash on Facebook ads. But that can be a big mistake. Instead of seeing paid advertising as the only route to growth, try and broaden your horizons and think of all the ways you could reach your potential customer. The more you do as an individual entrepreneur, the more you'll learn about your customer and be able to tailor your sales pitch to fit your specific market. Sarah's determination didn't stop once she got a yes from a retailer, though. She would personally visit every store that carried Spanx to make sure that her product was in the optimal part of the store. No one is going to buy your product if it's sitting at the bottom of the shelf at the back of the store. You want to be near the entrance or the cash register so everyone sees it. Sarah knew this, and she wouldn't accept anything less than the best possible placement for Spanx. She was so bold, in fact, that she once got caught on security cameras personally moving her product to a better section of the store without telling management. But sometimes that's what it takes to get ahead of the competition. This is a big part of sales that often gets overlooked and it comes back to human psychology again. Convincing someone to buy your product for their store is just the first step in actually growing your business. Plenty of people can be persuaded in a one on one conversation only to lose interest the next day. Great entrepreneurs know that even after they win a customer, they have to work extra hard to keep that customer happy and make sure the relationship doesn't fizzle out. Sarah's hard work paid off and Spanx started flying off the shelves. And then she got a huge break. She was invited on Oprah and got to pitch Spanx to millions of viewers. She told the perfect story around her product and it resonated with millions of consumers. Major celebrities started using Spanx and endorsing it publicly. Spanx.

It's my dream come true. If you keep the Spanx on, it'll all work out. I've given up panties. I wore Spanx. That's more information than y' all need to know.

With so much buzz, Sarah clearly could have raised boatloads of cash from top tier investors with ease. But she didn't. And that brings me to Sarah's third key success factor. Sarah puts profitability first, at every stage of Spanx growth, Sarah has been willing to get out of her comfort zone and do things herself. Instead of paying others and sacrificing profitability. Instead of hiring a fashion design firm, she designed the first version of Spanx herself. Instead of paying a law firm to file her patent, she went to the library and wrote it herself. Instead of hiring salespeople, she called department stores herself. Only when Spanx was making plenty of money and could afford to hire people did she actually expand her team. But ultimately, it doesn't matter how much you're willing to do yourself. If your product isn't making enough money, you need to make sure that the price your customers pay for your product is significantly higher than what it costs you to make it. Many startup founders try not to think about profitability early on, but Sarah made sure that each pair of Spanx made plenty of profit for the business.

A really good rule of thumb is five times manufacturing cost with packaging included. Included great.

Good margins like that will give you the opportunity to grow profitably without raising money. And that's exactly what Sarah did. She still owns 100% of Spanx, and even though the company hasn't gone public, she's a billionaire. But there's one more important thing to note about her model of profitable growth. It's really only an option if you commit to it fully. Once you raise money for your startup, your investors are going to expect you to pursue hyper growth at all costs. And that often means raising more money and eventually going going public. Some businesses are just better suited for venture capital than others. So really think about which model makes sense for your business. It can be hard to change horses midstream. If you want to chat about startups, you can always DM me on Twitter and please check out this recommended video. The YouTube algorithm thinks that you'll really like it.