Here is a great article on entrepreneurship, and the founder of Under Armour. It is a great story, but now that Nike and Reebok are getting in the game, Under Armour will have to work harder than ever to stay on top.
The compression-apparel market, which has grown 60 percent in the past year to $130 million, was essentially created by Under Armour, said Neil Schwartz of the market research firm SportScanInfo. The firm's tight-fitting, moisture-wicking clothing expanded beyond specialty items aimed primarily at bicyclists. Under Armour claims 80 percent of the total compression market, compared with Nike's 3.5 percent and Reebok's 1.1 percent. But Nike had total sales last year of $10 billion and Reebok sales of $3 billion.
"If you walk around the high schools and ask the jocks, they say they want Under Armour," Schwartz said. "It has a cooler logo, and everybody who wears it raves about it."
In building a market, though, Under Armour may fall victim to the troubles that plague trailblazing companies, analysts said. Some analysts point to Callaway Golf Co. as an apt analogy. When Callaway introduced its Big Bertha driver in 1991, the golf industry was turned on its head. Callaway's oversized, metal-head technology was so revolutionary, allowing even novice players to dramatically improve their play, that the company could charge almost double the average price for its clubs. By 1996, Callaway was the world's largest maker of golf clubs.
Two years later, though, the company reported a loss of $27 million. Callaway discovered that by introducing a new technology, it started a race for innovation that forced competitors to expand their research-and-development expenditures so greatly that the industry became significantly less profitable.
Under Armour, which holds no patent for the fabric it uses and says it considers the $5 cotton T-shirt the true competitor of its $25 technical attire, may find a similar competition emerging. Quality influences 76 percent of consumers' decisions on sports attire, said Mike May, a spokesman for the Sporting Goods Manufacturers Association. Both Reebok and Nike trumpet the technical abilities of their competing products as evidence of superiority.
I think this is one of the biggest fears of entrepreneurship. If you have a really great product that is part of a larger market with big players, the big companies will come and try to put you out of business. In this case, the small start-up has to capitalize on it's first-mover advantage, and pour money into marketing and product development so that they can claim product superiority. But, at the same time they need to be building up the balance sheet so that they have the financial resources to battle the big guys. It is a tough line to walk, because these goals conflict. My guess is that if Nike or Reebok can't take the lead in this industry, one of them will buy Under Armour to gain market share.